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Economists say figures showing inflation at a two-year high will not continue.
Statistics New Zealand yesterday published the Consumer Price Index (CPI) for the first three months of the year, showing prices rose on average 4.5% in the year to March 30.
For the three months to March it rose 0.8%, but that was lower than the 1-1.2% most commentators had picked.
Annual inflation hit 5.1% in the three months to September 2008 on the back of soaring fuel prices. The high point before that was in 1990 when it was 4.9%.
ASB Chief Economist Nick Tuffley says rising fuel prices and "one-off" hits like the rise in GST and increases to ACC charges pushed the figure up.
"A lot of it is just a one-off impact. As prices get lifted, such as GST, they reach a new level. Then we'll see the inflation figures die back to something a little bit less painful by the end of the year," Tuffley told TVNZ News at 8.
"So if we look at the 4.5% annual inflation figure, and if you took out GST, we'd be somewhere about 2.5-2.6%, so it would look a little bit better."
Statistics New Zealand said the February 22 earthquake had not "materially affected" the rate.
After the announcement the kiwi dollar dropped to under 79.5 US cents after touching just near 80 US cents earlier in the day.
Prices up
Food and fuel price hikes, along with increased taxes on alcohol
and cigarettes, are the leading contributors pushing up the cost of
living and inflation.
The transport group overall rose 2.5% in the March quarter, with a 9.7% rise in petrol countered by a seasonal fall in international air fares.
"Petrol prices have increased strongly over the past six months and at the end of March were only slightly below their peak in July 2008," Statistics NZ's prices manager Chris Pike said.
Westpac Chief Economist Dominick Stephens said a strong New Zealand dollar meant petrol prices were not as high as they could have been.
"Globally, food prices, commodity prices and petrol prices are all rising. The New Zealand dollar typically rises in those circumstances and the strong exchange rate actually keeps the price of other things down for consumers," said Stephens.
Cigarette and tobacco prices rose 9.4% which reflected the 11.6% increase in excise duty on January 1, Statistics NZ said.
Food prices have drawn a lot of attention. Grocery items rose 4.8% in the last year, or 1.1% in the March quarter.
Fruit and vegetable prices were up almost 10% over the annual period.
Bread and cereals were up 1.4 % in the March quarter and milk,
cheese and eggs increased 1.3%.
Call for higher wages
After the announcement the Engineering, Printing and Manufacturing Union (EPMU), the country's largest private sector union, called for higher wages.
"Inflation over the past year has reached 4.5% and is on track for 5.5% this year, the highest level in two decades, EPMU national secretary Andrew Little said.
"There's no question - working people are really feeling the pinch at the moment. Petrol prices alone have soared 25% since October 1 last year.
"This is not a good sign when 50% of workers didn't even get a pay increase last year and when real incomes have fallen 4% in the last year before this figure.
Little said the new rise in the cost of living needed to be taken into account when people are negotiating their collective agreements.
Government concerned
Prime Minister John Key told Breakfast yesterday he was concerned about rising prices, particularly those being driven by oil.
"That is putting pressure on inflation and of course that feeds through to every product we buy," he said.
He claimed the government's tax package had helped, as would a reduction in government spending.
"The government can't control some things, like violent fluctuation in food prices or petrol prices, but what we can do though is we can make sure we take the pressure off the system.
"By us controlling our expenditure then we take the pressure off the Reserve Bank Governor, in turn it's less likely that he will increase interest rates." he said.
The Reserve Bank's Official Cash Rate is at 2.5% after a 50 basis point cut following the Christchurch quake.
The central bank is obliged to keep inflation within a target band of 1-3% but can "look through" short-term price spikes and one-off factors such as tax changes, focusing on medium-term pressures, such as wage setting and employment.
Stephens says he does not expect an interest rate hike in the short-term.
"The annual inflation figure of 4.5% includes the GST hike, two changes in tobacco excise and a range of administrative charges. If it weren't for that, inflation would be 2% or lower, which is very subdued," he said.
The Consumer Price Index measures prices paid by New Zealanders, and tracks changes by comparing the costs of the same "basket" of goods and services over time.
- With Fairfax
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