Annual inflation rises to 18 month high of 2.5%

By NZPA

Friday 15th October 2004

Inflation, as measured by the Consumer Price Index, rose to an 18 month high of 2.5% in the September year.

Releasing the data today, Statistics New Zealand said the CPI rose 0.6% in the September quarter - bang on economists' forecast.

The data may give the Reserve Bank further cause to hike interest rates twice more this year.

Private sector economists believe the bank will hike rates for sixth time this year on October 28. Whether the central bank goes again at its next review on December 9 may depend on whether oil prices ease and on the strength of the New Zealand dollar.

The RB, which forecast a 0.5% CPI rise for the quarter, expects inflation to jump above its 1-3% target inflation band in the first half of next year. But economists expect the economy to be already turning down by December.

ANZ economist John Bolsover said today's numbers gave no comfort to the Reserve Bank.

He said the Quarterly Survey of Business Opinion out this week showed ongoing price pressures arising from the labour market and full capacity utilisation.

"It's just another in a string of strong releases," he said.

The cost of housing made the most significant upward contribution to the CPI rise in the quarter, with prices up 1.6%. This was the ninth consecutive quarter housing has been the biggest contributor to the CPI.

Higher prices for alcohol (up 2.2%) arising from an increase in excise duty and international air travel also contributed significantly.

Transport prices rose 0.5%, mainly due to higher prices for international air fares, which were up 5.9% in response to fuel surcharges imposed by airlines. Public transport prices rose 4.5%.

Food prices fell 0.2% in the September quarter with fruit and vegetables down 0.8% and meat, fish and poultry down 0.9%.

The Food Price Index for September, also released today, showed prices rose 1% as fruit and vegetable prices rebounded. The index was up 1.3% for the year.

Over the year, construction prices rose 9%, reflecting the now waning boom in the housing market.

The cost of home ownership was up 8.2% for the year although rents were only up 2.9%.

Petrol prices were up 11.9% for the year.

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