19 Apr 2011

Inflation at highest level in two years

6:11 am on 19 April 2011

Food and fuel is getting more expensive and official figures show inflation is at its highest level in two-and-a-half years at 4.5% - well above the Reserve Bank target of 1% to 3%.

It is the highest rise since a 5.1% spike in the year to September 2008.

Statistics New Zealand figures show the Consumers Price Index (CPI) rose 0.8% in the three months to 31 March, due to higher fuel prices, cigarettes and food.

The CPI measures the rate of price change of goods and services purchased by households. Statistics New Zealand visits 3000 shops throughout New Zealand to collect prices for the index and check product sizes and features.

Official figures show that petrol prices rose by 17% over the year to March. Food and electricity bills also surged, while cigarette and tobacco rose by 26.1% due to an increase in excise duties.

The Goods and Services Tax (GST) rose from 12.5% to 15%.

Statistics New Zealand says eight of the 11 groups in the CPI rose.

Statistician Russell Hewitt says transport costs rose by 8.2%, housing and household utilities by 4%, food by 4.8% and alcoholic beverages and tobacco by 11.4%.

While groceries overall rose by about 5%, there were larger increases for vegetables (up 12%) and milk, cheese and eggs, which rose nearly 9%. In the first three months of this year, petrol increased by nearly 10% and diesel by 15%.

However there was some relief, with clothing and footwear prices falling slightly, and there was also a seasonal fall in international airfares.

Statistics New Zealand says the Christchurch earthquake on 22 February did not affect prices in the March quarter.

Council of Trade Unions economist Bill Rosenberg says there will be little respite, as inflation is expected to stay at high levels.

Annual inflation is now well above the Reserve Bank's target band of 1% to 3%.

Bank of New Zealand economist Doug Steel says the rise in inflation in the March quarter was expected and the Reserve Bank is unlikely to be worried unless the price increases flow through into the wider economy.

Govt can't control rising oil prices - Key

Prime Minister John Key says inflation is being pushed up by the rising cost of oil, a situation that is out of the Government's control.

Mr Key says the Consumers Price Index is below what economists were predicting.

However, he says the Government acknowledges that people are feeling the pinch from rising prices - particularly petrol.

Mr Key says oil prices increased by more than 35% in the past six months due to political instability in the Middle East.

He says the rise in inflation is also being driven by greater tobacco costs and the GST increase.

Mr Key says GST was fully compensated for through tax cuts and other income support, and all other inflation adds up to less than 1% for the entire year.