16 Jul 2010

Inflation pressures cool as consumers rein in spending

12:32 pm on 16 July 2010

Inflation has cooled slightly in recent months as lacklustre demand forces retailers to slash prices to lure shoppers.

The consumers price index rose 0.3% in the three months to June, taking the annual rise to 1.8%.

The biggest contributors to rising prices were cigarettes and tobacco, which rose 8.7%, reflecting an increase in excise duty.

Food prices fell 0.9% during the period following a rise in the previous quarter, while vehicle-related costs posted their smallest increase in a year, figures released by Statistics New Zealand on Friday showed.

Transport prices rose 0.9% due to higher prices for petrol, housing and household utility prices rose 0.5% and recreation and culture prices fell 0.7%.

ANZ Bank senior economist, Khoon Goh, says once the rise in excise tax on tobacco is stripped out, underlying inflation rose a modest 0.1%.

He still expects the Reserve Bank to raise the official cash rate next week, but says it may now pause in the final quarter of the year.

The annual rate of inflation, which fell during the quarter from 2% to 1.8%, is the second lowest annual rate in nearly three years.

The New Zealand dollar fell a third of a cent after the data was released, and at midday was trading at 72.24 US cents.