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CPI increasing at rapid pace

Published: 9:52AM Monday July 17, 2006 Source: RNZ/TVNZ Interactive

High oil prices are pushing consumer prices higher at their fastest pace in 16 years. 

The annual inflation rate, as measured by the Consumers Price Index (CPI),  rose 4%  for the year to the June 2006 quarter, up from 3.3% for the year to the March 2006 quarter. On a quarterly basis, the CPI increased 1.5% in the June 2006 quarter, following a 0.6% increase in the March 2006 quarter.

The results were higher than expected by economists and the Reserve Bank, which said it was not expecting inflation to get close to 4% until the end of this year.  Westpac Bank economists had forecast a 3.7% increase for the year to June and 1.2% in the three months to the end of June. 

The most significant contribution came from the transportation group, which was up 5.5% driven by higher prices for petrol (up 14.7%) and international air travel (up 7.1%). For the year to the June 2006 quarter, prices for petrol and international air travel increased 32.2% and 8.7%, respectively.

The annual increase for petrol is the largest since the June 1985 quarter, when petrol prices increased 35.4%.

The housing group rose 1.2% in the June 2006 quarter, with prices for the purchase and construction of new dwellings up 1.4%. For the year to the June 2006 quarter, prices for the purchase and construction of new dwellings increased 5.0%.

It is the fourth consecutive quarter that annual inflation has stayed above the Reserve Bank's 1.3% target band.

Westpac chief economist Brendon O'Donovan says he is concerned that there's more  inflation pressure to come.

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