22 Oct 2008

Salvation Army predicts lean Christmas for many

6:08 am on 22 October 2008

The Salvation Army is predicting a lean Christmas for many New Zealand households as the cost of living continues to rise.

The rate of annual inflation has surged to its highest level since June 1990, and the annual cost of food is also the highest it has been since April that year.

The Salvation Army says there has been a 20% increase in demand for its assistance with food and budgeting advice in the past year.

Social services spokesperson for the Auckland region, Gerry Walker, says the Salvation Army helped 16,000 families last Christmas and expects that figure to grow by 10% this year.

He says the effects of the credit crunch may mean donations will be harder to come by.

Food index also up

Figures issued by Statistics New Zealand on Tuesday show the Consumer Price Index rose 1.5% in the September quarter, taking the annual rate of inflation to 5.1%, the highest it has been for 18 years.

Food prices rose 10.8% for the year to September, the highest annual increase since April 1990.

Statistics New Zealand says a 3.7% rise in the price of meat, poultry and fish was the main contributor to the increase in food prices in September.

Other food groups contributing to the rise were grocery food (up 0.5%), restaurant meals and ready-to-eat food (up 0.4%) and non-alcoholic beverages (up 0.3%). However, fruit and vegetable prices dropped 2.2%.

Food prices rose 10.8% for the year to September 2008 - their highest annual increase since April 1990 when they increased 11.4%.

Statistics New Zealand says transport costs rose 2% during the quarter, with the biggest contribution coming from high petrol prices.

Interest rate cut expected

Despite annual inflation being outside the Reserve Bank's target band of 1% to 3%, economists expect that the central bank will cut the Official Cash Rate by as much as a full percentage point on Thursday.

The Reserve Bank cut the benchmark interest rate by half a percentage point to 7.5% on 8 September.

The rate was previously reduced from 8.25% to 8% on 24 July. That was the first cut since July 2003.

The BNZ expects quarterly inflation to fall 0.2% in the final three months of the year, due to the slowing economy, which will dampen consumer demand.

New Zealand is technically in a recession. Gross Domestic Product was down 0.2% for the June quarter and 0.3% for the March quarter.

The last recession, in 1997 to 1998, lasted nine months.