Inflation jumps above 2 per cent as petrol prices and tobacco tax rise

FAIRFAX NZ

The cost of living is rising at the fastest pace since at least 2011

The cost of living is rising at the fastest rate in more than five years, with inflation jumping on the back of higher food and fuel prices.

Statistics New Zealand figures showed the consumer price index - the official measure of household inflation - rose by 1 per cent in the first three months of 2017.

Annual inflation for the year to March 31 climbed to 2.2 per cent, higher than economists were expecting, and the highest level since September 2011, when inflation was boosted by an increase in GST.

Petrol prices have climbed sharply since the start of the year, pushing inflation to the highest level since 2011.
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Petrol prices have climbed sharply since the start of the year, pushing inflation to the highest level since 2011.

If the GST hike was excluded, inflation had not been above 2 per cent since 2009, Statistics New Zealand said.

READ MORE: Jump in the cost of living may spark higher wage demands

Stronger fruit and vegetable prices, coupled with an increase in the price of petrol and the annual increase in the tax on cigarettes and tobacco, boosted inflation.

The jump in inflation means that the cost of living is now climbing at faster than the labour cost index, a measure of the speed at which pay rates are rising across the economy.

Earlier this week the Council of Trade Unions (CTU) warned rising inflation would feature in pay demands. CTU economist Bill Rosenberg said the increases would have a disproportionate effect on low income households.

"[I]t is concentrated mainly in necessities that hit the budgets of low and middle income households hardest." 

ASB chief economist Nick Tuffley said the factors which pushed up inflation were broad. Even excluding the increase in tobacco taxes and petrol price increases, inflation was 1.5 per cent.

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Food prices were boosted by stronger prices for apples and milk, both of which were seeing strong international prices, which could push up demand locally.

"We expect food prices will remain elevated over coming months due to poor weather affecting crops," Tuffley said.

Westpac acting chief economist Michael Gordon said the biggest surprise in the figures were that the price of goods such as clothing and electronics, were not as weak as expected given how strong the New Zealand dollar had been at the start of the year.

"Those firmer prices may suggest that retailers are starting to rebuild margins off the back of solid domestic demand," Gordon said.

"Business surveys signal that many retailers are looking to increase their prices further over the coming year."

The rise pushes inflation above the mid-point of the Reserve Bank's 1-3 per cent target for the first time since Graeme Wheeler became governor.

Forecasts published by the central bank suggested the benchmark official cash rate could stay at its current record low until 2020.

The New Zealand dollar jumped against all major currencies when the figures were announced, on the possibility that higher inflation could bring forward a likely interest rate hike.

Economists at Kiwibank brought forward the timing of the first interest rate hike, from mid-2019 to late 2018.

"Today's CPI data provides growing evidence that inflation pressures are becoming more widespread and sustained," chief economist Kiwibank Zoe Wallis said.

 

 

 

 - Stuff

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