CPI up 1.0 per cent in June quarter

Inflation, as measured by the Consumers Price Index (CPI), rose by 1.0 per cent in the June quarter, Statistics New Zealand said today.

The quarterly increase, mirroring private sector forecasts, follows rises of 0.6 per cent in the March and December quarters and takes inflation for the year ending June to 2.8 per cent.

Higher prices for petrol and international air travel were the main contributors to the quarterly increase, SNZ said. This was partly offset by falling food prices, especially for fresh fruit and vegetables.

Transport prices rose 3.3 per cent during the period, driven by 9.9 per cent price increases for both petrol and overseas flights. Petrol price rises early in the quarter were partly offset by decreases in the second half, while air travel is typically more expensive at this time of the year.

Food prices made the only downward contribution to the index during the quarter, falling by 0.5 per cent. At 2.8 per cent per annum, inflation is now hovering near the top of the Reserve Bank's 0-3 per cent target band, set out by the Government in its Policy Targets Agreement (PTA). Labour is promising to revisit that agreement if elected later this month.

Finance Minister Michael Cullen last week criticised the Reserve Bank for its hardline stance on inflation. He said the bank's policy of aiming for the mid point of the target band, or 1.5 per cent inflation, was putting the brakes on strong economic growth.

Dr Cullen said the bank will "crucify" exporters if it continues to lift interest rates to curb inflation. High interest rates could force up the kiwi dollar, as they did in the mid-90s, making New Zealand's exports less competitive, he said.

The Reserve Bank has hiked the Official Cash Rate four times this year to 5.75 per cent. Across the Tasman, Australia's central bank has lifted rates just twice during that period. Their rate is 100 basis points (bps) lower at 4.75 per cent.

Economists polled by Reuters rate the risk of a further 25 bps hike in the OCR at next month's review at 54 per cent, while 40 per cent expect no change and 6 per cent are calling for a 50 bps rise.

In other figures out today, SNZ said the Food Price Index (FPI) fell by 0.3 per cent in the June month, against market expectations of a 0.4 per cent rise.

Falling meat, fish, poultry and fruit and vegetable prices were the main contributors to the monthly movement.

For the year ending June food prices rose 3.0 per cent, the lowest annual increase since October 2000.

The CPI for the September quarter will be released on October 15.

The New Zealand dollar traded at US48.64c by 11am from US48.55c at 9am.

WestpacTrust treasury economist Nick Tuffley said the figures were very much in line with expectations. He added that at 2.8 per cent per annum, inflation had probably peaked, and would likely fall to 2.6 per cent or 2.5 per cent in the September quarter, as the impact of lower petrol prices and a higher exchange rate filtered through.

WestpacTrust is expecting another interest rate hike at the RB's August review, although it was still a "line call," Mr Tuffley said.

- NZPA