Inflation up more than expected

Sam Huggard
Sam Huggard
Rising rates, rents and increasing construction costs combined to help lift annual inflation higher than the market and the Reserve Bank expected.

Quarterly inflation rose 0.5% in the three months ending September compared with the market forecasts of 0.4% and the Reserve Bank's estimate of 0.2%.

Annual inflation rose by 1.9%, close to the Reserve Bank's 2% target midpoint. The market expected annual inflation to be 1.8% at the end of September and the Reserve Bank forecast inflation to be 1.6%.

ASB economist Nick Tuffley said despite the stronger-than-expected result, the underlying story remained unchanged.

Higher housing and food costs continued to drive most of the inflation in New Zealand.

Outside of those sectors, there were some subdued signs of life.

While the Reserve Bank would be relieved to see underlying inflation about the midpoint of the target band, it was unlikely to put too much weight on the result, at this stage, he said.

The bulk of the difference to the Reserve Bank's 0.2% forecast was likely to be accounted for by more recent strength in food and fuel prices.

In particular, the central bank was likely to remain cautious given the recent weak results in GDP growth at the start of the year.

''The economy needs to start firing on all cylinders if we are going to see evidence of sustained price pressures.''

Further, there remained downside risks lurking in the background and the composition of the next government was still unknown, Mr Tuffley said.

The Reserve Bank knew that and, with the luxury of time on its side, was unlikely to respond to the latest result.

Statistics New Zealand's consumers price index, the official measure of inflation, showed housing-related costs had the largest upward contribution to inflation in the September quarter.

Rents rose 0.2% in September and 2.2% for the year.

Construction of new dwellings, excluding land, rose 1.1% in the quarter and 5.4% in the year. Local authority rates rose 3.5% in the quarter and 3.7% in the year and dwelling insurance rose 6.1% in the quarter and 12% in the year.

Statistics NZ prices senior manager Jason Attewell said a fall in transport prices helped to offset the rise in housing-related costs.

Petrol prices fell 1.7% in the quarter, although they increased 4.5% for the year. International air fares fell 5.5% in the quarter and 2.7% in the year and vehicle relicensing fees fell 8% in both the quarter and the year.

''In the latest quarter, petrol prices fell 3c to an average of $1.83 a litre, despite rising through August and September.''

Council of Trade Unions secretary Sam Huggard said living in New Zealand had become more expensive, especially for the poor. Prices were rising faster than wages and some of the biggest price rises were basic necessities for the lowest-paid.

''Food and shelter are the most basic and unavoidable costs but they make up a bigger percentage of the budget for families earning the least.''

Even petrol prices had risen faster than most costs and wages during the last year, he said. Those who were struggling to get by were trying to keep up with relative inflation more so than people who had more financial flexibility.

''It's not fair to working people that wages across the board are falling behind the cost of living.''

The new government should make it an urgent priority to boost real incomes, pay a living wage to the people they employed and establish industry standards to deliver a fairer return for hard work, Mr Huggard said.



High interest