18 Oct 2010

Annual inflation lowest in six and a half years

9:32 pm on 18 October 2010

The annual rate of inflation has fallen to its lowest in six and a half years, even though the biggest quarterly rise in more than two years was recorded in the three months to 30 September.

Official figures show that the Consumers Price Index rose 1.1% in the latest quarter, taking the annual rate of inflation to 1.5%.

That's the lowest inflation has been since March 2004. But representative groups for landlords, retailers and local councils say price pressures are building, and economists at Deutsche Bank and the BNZ say annual inflation has probably troughed.

The ANZ Bank's senior economist, Khoon Goh, says the quarterly increase is due to higher food prices and higher government charges.

While the inflation figures are slightly higher than the Reserve Bank's forecast, he says, he still expects the bank to keep interest rates on hold for the rest of the year.

The Retailers Association is hopeful the rising New Zealand dollar will help keep inflation down: spokesperson John Albertson says it gives retailers room to restore margins without raising prices.

The annualised rate of inflation fell for the second consecutive quarter to 1.5% - below the peak of 5.1% two years ago and below the midpoint of the Reserve Bank's target band of 1% to 3%.

Power prices played a big part

The figures also show that the hiking of charges by power companies before the new GST rate took effect on 1 October had a big effect on inflation during the September quarter.

Statistics New Zealand says a quarter of the 2.8% increase in electricity can be attributed to power companies' charging the higher GST rate of 15% on electricity used in September but invoiced in October.

Along with a 4.4% increase in rates, that pushed up the cost of household utilities, making them collectively the second biggest contributor to rising prices in the quarter.

The biggest component was a 20% increase in food prices.

The rise of 1.1% in the Consumers Price Index compared to an increase of 0.2% in the previous quarter.