An economist says the Reserve Bank must remain vigilant about inflation pressures, despite signs retailers are cutting prices to lure shoppers.
Inflation is expected to peak at more than 5% early next year following a rise in GST to 15% and higher Government charges.
ASB economist Jane Turner says there's no evidence of inflation being a problem at the moment, as retail spending has been driven by discounting in recent months, while the housing market remains weak.
But Ms Turner says some retail sectors will be able to pass on October's GST rise to customers, and that will be of concern to the Reserve Bank.
However, UBS senior economist Robin Clements says discounting should keep inflation in check, and the Reserve Bank will be balancing other factors.
