Buoyant housing sector pushes CPI up in March quarter

11.00am - By ANDREW MACDONALD

The Consumer Price Index (CPI) increased 0.4 per cent in the March quarter, driven by the buoyant housing market and hikes in construction costs, Statistics New Zealand said today.

The rise was less than the 0.6 per cent increase forecast by the Reserve Bank and the 0.5 per cent increase picked by economists.

It comes after a rise of 0.7 per cent in the December quarter and 0.5 per cent in the September quarter.

The last quarterly decrease in the CPI was in the March 2001 quarter.

Year on year, the rise was 1.5 per cent, which was below economists' predictions of 1.7 per cent.

Of the nine groups which make up the CPI, five recorded price increases in the three months to March 31.

Statistics NZ said the most significant increase in the CPI components for the March quarter was in the housing group.

Prices in the housing group increased 1.4 per cent, Statistics NZ said.

"The rise in the housing group... was mainly due to higher prices for the purchase and construction of new dwellings, which increased by 1.6 per cent," government statistician Brian Pink said.

It follows a rise on 3.3 per cent in the December quarter.

"Construction prices have increased for 20 consecutive quarters and the annual increase of 8.7 per cent is the largest since the June 1995 quarter," he said in a statement.

Forty-nine per cent of the surveyed construction prices rose in the March quarter, compared with 61 per cent in the three months to December 31.

"The main reasons cited for the rises... were increased subcontractors' charges, higher prices for construction components, and rises in labour costs."

Real estate agents' fees were up 6.7 per cent, driven by higher property prices, while the cost of buying a house spiked 5.1 per cent.

Rent increased by 1.4 per cent in the March quarter, following increases of 0.5 per cent in the December quarter and 0.8 per cent in the September quarter.

Mr Pink said the 0.4 per cent increase for the March quarter also reflected higher prices for petrol and vehicle insurance. "These increases were partly offset by decreases for international air travel," he said.

The cost of international air travel fell 11.8 per cent, whereas petrol prices were up 5.3 per cent and vehicle insurance was up 6.0 per cent.

Recreation and education costs rose by 1.1 per cent, mainly driven by a 3.6 per cent hike in tertiary education fees.

Prices for personal and health care rose by 0.9 per cent because of higher prices for medical and health services, which were up 1.0 per cent.

Medical and health supplies were up 6.7 per cent.

Also during the quarter, transportation prices fell 0.4 per cent.

Prices for apparel, credit services, household operation, and transportation groups decreased between the March and December quarters.

Mr Pink said the annual increase -- between the March 2004 quarter with the same period in 2003 -- was also "strongly influenced' by price increases in the purchase and construction of new dwellings.

"The most significant annual decrease was a 20.9 per cent fall in the prices for international air travel," he said.

Meanwhile, food price rose 1.0 per cent in March from February, mostly because of higher prices for fruit and vegetables.

Economists had predicted a 0.7 per cent increase for the same period.

- NZPA