Inflation likely unchanged

Annual inflation is expected to have remained at 1.6% in the 12 months ended March but that will be only temporary, with economists picking inflation to creep up to 2% in the next couple of years.

Statistics New Zealand figures due out on Wednesday will be scrutinised for evidence of home-grown inflation pressures as the economy starts to use up its spare capacity.

Westpac senior economist Michael Gordon said there was already a distinct housing-related flavour to the recent increase in annual inflation, which had been strongest in Canterbury but was increasingly spreading to the rest of the country.

The Reserve Bank was well aware domestically generated inflation pressures tended to follow economic upswings with a lag. Once allowed to develop, the home-grown pressures could be difficult to drive out.

Westpac was forecasting quarterly inflation of 0.4%, a ''fairly normal'' seasonal increase that would leave annual inflation at 1.6%.

The quarterly drivers of the consumers price index (CPI), the official measure of inflation, were often idiosyncratic and seasonal.

In March, the major positive contributions were expected to come from another hefty increase in tobacco excise (up 11.3%), annual changes in tertiary education fees, and a seasonal increase in food prices, Mr Gordon said.

Those should be partly offset by seasonal falls in items such as overseas airfares, package holidays, books and stationery.

''We expect to see a further acceleration in prices for the housing-related categories such as new dwellings, rents and property maintenance. Housing construction costs have risen particularly quickly in Canterbury, as have rents, as the post-earthquake rebuild has picked up pace.''

But in the last few quarters, there had been signs of housing-related price pressures starting to seep out into the rest of the country as well and Mr Gordon expected that to continue.

China's inflation rate accelerated to 2.4% year-on-year in March, driven by higher food prices.

The increase in the CPI announced by the National Bureau of Statistics (NBS) on Friday was up from the 2% recorded in February, but marginally below economists' forecasts of 2.5% reported by Dow Jones Newswires.

Food prices rose 4.1% in March from the year before, the NBS said.


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