The high New Zealand dollar is keeping inflation in check. Statistics New Zealand figures show inflation has risen modestly, with the Consumer Price Index (CPI) rising 0.3 percent in the first three months of the year compared with the final quarter of 2013.
The largest contribution came from higher tobacco prices, which reflected an increase in excise duty. Housing prices also rose, as did building costs, rent, rates and electricity bills.
However, the high dollar made imported goods such as cars, appliances and televisions cheaper. Also cheaper were vegetables, international air fares and package holidays.
Statistics New Zealand said if the increase in tobacco was excluded, inflation would have been unchanged.
It also said the strong New Zealand dollar had had a downward influence on the retail prices of internationally traded goods, including cars and appliances.
The housing market makes up about half of the annual increase in inflation, and those pressures are expected to intensify as activity in Christchurch and Auckland picks up pace.
That is likely to prompt the Reserve Bank to keep raising interest rates from its current level of 2.75 percent, including the high likelihood of one next week.
Westpac chief economist Dominick Stephens said the outcome would reduce the urgency for the Reserve Bank to raise interest rates but he was still expecting the official cash rate to rise later this month and again in June.
Below expectation
On an annual basis, the pace of inflation eased slightly to 1.5 percent, for the year ended March.
Economists had expected the CPI to rise between 0.4 and 0.6 percent for the quarter and between 1.6 and 1.8 percent for the year.
The annual outcome is well below the 2 percent level that Reserve Bank governor Graeme Wheeler is targeting.
The Reserve Bank has forecast a 0.5 percent quarterly increase and a 1.7 percent annual rise compared with the 1.6 percent outcome for calendar 2013.
The New Zealand dollar fell nearly half a US cent when the data was released on Wednesday morning. At 5.20pm, the Kiwi was trading at 85.92 US cents, 91.64 Australian cents, 51.36 British pence, 0.6218 euro, 87.8 yen and 5.34 renminbi.
