12 Oct 2009

Inflation forecast to increase 0.8% in third quarter

6:13 am on 12 October 2009

Higher food costs and a rise in government charges are forecast to push inflation in the third quarter up by 0.8%.

But annual inflation for the year ending September is forecast to drop, to about 1.1%, from 1.9% for the year ending June, according to economists.

ASB chief economist Nick Tuffley says vegetable prices rose in the third quarter following a cold snap earlier in the year, whilst a rise in council rates and taxes will also add pressure.

Annual inflation is forecast to drop, he says, due to a sharp fall in the price of petrol.

But Mr Tuffley says inflation is expected to come up again and is likely to sit in the 1.5% - 2% range over the next year.

In the short term, he says the Reserve Bank has a forecast of 1.2% inflation and 0.9% for the quarter which is roughly in line with the market expectation.

Meanwhile, Westpac senior economist Doug Steel, says it will take time for retail prices to feel the effects the strengthening New Zealand dollar.