18 Jul 2011

Inflation soars to 21-year high

6:57 pm on 18 July 2011

The annual rate of inflation has risen to a 21-year high of 5.3% in the year to June, Statistics New Zealand figures show.

The consumers price index (CPI) rose 1% in the June quarter, driven by higher utilities, housing, transport and food prices.

The increase in the annual rate of inflation includes the 2.3% rise in the December quarter when GST went up to 15%.

If the effect of GST is excluded, annual inflation was 3.3% - still the biggest annual increase since 2008.

During the three months to June, the cost of transport went up 2.7%, reflecting higher prices for petrol and airfares.

Food prices rose 1.1%, with higher prices for grocery food and vegetables.

Housing and household utility prices rose 0.9% taking into account higher prices for electricity.

A total of 363 items rose in the June quarter, up from 340 in the preceding three months.

Rate higher than Reserve Bank forecast

Both the inflation figures and last week's GDP figures are higher than the Reserve Bank's most recent forecasts.

Radio New Zealand's economics correspondent says this points to an earlier-than-expected start to interest rate rises.

The New Zealand dollar rose half a cent in early morning trade, with the currency buying just under US85 cents at its highest point.

The currency gave up all those gains early Monday afternoon as investors dumped so-called risky currencies in favour of the US dollar.

Westpac says a note from a US investment bank, suggesting European banks may be shakier than suggested by last week's stress tests by regulators, prompted the sell-off.

Inflationary pressures

Westpac senior economist, Michael Gordon, says strong world commodity prices played a major part in driving inflation higher, and the figures provide further confirmation the economy is picking up

Statistics New Zealand pointed to strong price rises for household contents as evidence a long period of discounting is coming to an end.

But Retailers Association chief executive John Albertson says customer demand isn't strong enough yet for his members to begin jacking up prices to any great degree.

PM optimistic

Prime Minister John Key says the long-term outlook is for inflation to come under control, reiterating once the GST tax-switch is taken out of the 5.3% figure, inflation would be running at about 3.3%.

Labour Party leader Phil Goff says the inflation figures are frightening. Mr Goff says New Zealanders are already struggling and rising prices don't help.