7 May 2013

Risk of inflationary pressure in Canterbury - Treasury

7:54 am on 7 May 2013

The Treasury says there is a risk that inflationary pressures in the Canterbury region will build up, with more strain on resources as the rebuild gets underway.

In its latest set of monthly economic indicators, the Government's economic adviser says inflationary pressures remain subdued, depressed by the high New Zealand dollar.

But Treasury is expecting inflation to pick up over the coming year with the impact of the high New Zealand dollar gradually fading and the Canterbury rebuild reducing spare capacity.

It says while headline inflation is weak, the annual consumer price index in the Canterbury region reached 1.6%, much higher than the national rate.

The chief economist at the Treasury, Girol Karacaoglu, expects the economy to have experienced growth over the March quarter that looks to have been broad-based.

Mr Karacaoglu says the Canterbury region is the main driver of economic recovery.

While pricing pressures are broadly based, there are special pressures in the Canterbury region, he says.

"One of the risks in the outlook is the pricing pressures building up because of resources pressures as the Canterbury recovery picks up.

"In the context of our overall inflation outlook there are some regional differences but for the economy at large we're talking in the environment of 1.5% to 2% inflation over the next two, three years."