Inflation hits five year high

By Phil Boeyen, ShareChat Business News Editor

Wednesday 17th January 2001

New Zealand's annual inflation has hit its highest level for more than four years with the Consumer Price Index rising 4% in the past year.

The CPI rose by 1.2% in the December 2000 quarter and follows an increase of 1.4 per cent in the September 2000 quarter.

"The CPI is now 4.0 per cent higher than a year ago. This is the largest annual increase in the CPI since June 1995, however that movement was strongly influenced by increases in interest charges," Statistics New Zealand said in a statement.

"In the December quarter it was noticeable that price rises were more widespread than in the September quarter. In the December quarter 64% of items increased in price compared with 54% in the September quarter."

While the rise in September's quarterly inflation was led by price jumps for petrol, cigarettes and tobacco, there were no items with a similar influence in the December figures.

The most significant item price increase in the December quarter came from international air travel, which rose 5.6%, followed by new housing and fruit and vegetable prices.

Finance Minister Michael Cullen is downplaying the latest rise and says while it is higher than most were anticipating, it is consistent with inflation falling back to within the 0 to 3 percent target range in the second half of this year.

He says there are a number of factors which would either come into effect or fall out of the index over the next three quarters.

"The restoration by the Government of income-related State house rentals on December 1 will affect the March figure significantly, reducing it in Treasury's estimation by 0.6 percent.

"Other downward influences which will come into account in the March quarter are the summer "petrol price war" and the effect of the rising dollar on import prices," he says.

However National's Finance spokesman, Bill English, claims the latest CPI figures show that New Zealand household costs are more than $31 a week higher than they were a year ago.

Mr English says the Reserve Bank has a difficult balancing act to perform when it considers any future interest rate decisions.

"They need to weigh up the fledgling domestic economic recovery, inflation that is becoming more generalised, likely future wage demands as households attempt to restore their spending power and the weakening external environment which has already prompted the US Federal Reserve to cut interest rates," he says.

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