16 Jul 2008

Petrol, food rises push inflation to 4%

6:37 am on 16 July 2008

Higher petrol prices have pushed inflation for the three months to June to 1.6%, making the annual inflation rate 4% - above the Reserve Bank's target band of between 1% and 3%.

Statistics New Zealand says the Consumer Price Index rose 1.6% in the period. In that time, petrol prices rose 13%, and higher food prices also figured prominently.

The average cost of food rose 8.2% during the past year - the steepest rise in 18 years.

The biggest jumps were for supermarket items: grocery foods rose 12.1% - much of that linked to increases in the cost of butter, cheese and milk - while fruit and vegetables rose 8.7%.

Meat, poultry and fish increased 4.4%. In the last month alone, the average cost of food went up 1.3%.

Households and companies also had to cope with stronger electricity prices as drought conditions affected power generation.

Despite the annual rate now exceeding the Reserve Bank's target band, most economists expect the bank will start lowering the Official Cash Rate from September on mounting evidence that the economy is in recession.

Goldman Sachs JBWere economist Shamubeel Eaqub says the situation is volatile, making it difficult for the bank to know when to lower interest rates.

The Official Cash Rate, currently 8.25%, was set in July last year.

Meanwhile an economist from Infometrics says inflation has not yet reached its high point and may soon reach 5%.

Chris Worthington says the Reserve Bank's own predictions are that inflation will not fall below 3% in the next 18 months.

Jobless numbers

Meanwhile, unemployment continues to decline.

Labour market reports issued by the Department of Labour show unemployment is below 5%, in all 12 regions surveyed.

But the report shows that several districts, mainly in the eastern Bay of Plenty, still have relatively high rates of unemployment.