Inflation keeps on creeping on

Inflation continues to creep towards the top of the Reserve Bank's 1 to 3 per cent target band and was saved from crossing it in the March quarter only by a sharp fall in international air fares.

Consumer prices rose 0.4 per cent in the March quarter, pushing the annual rate to 2.8 per cent from 2.7 per cent in December.

That was lower than the 0.6 per cent the markets and the Reserve Bank had forecast.

Without the 15.8 per cent decline in international air fares, the quarterly CPI increase would have been 0.9 per cent, Statistics New Zealand said. A seasonal fall in fares is normal in the March quarter but this year's was steeper than usual.

Again, the housing sector was the main hotspot, construction costs up 1.5 per cent for the quarter and 7.2 per cent for the year.

Although the prices of existing houses are not included in the CPI, real estate agents' fees are. They rose 12.6 per cent over the past year. Rents, by contrast, rose 2.2 per cent over the year.

Electricity rose 1.1 per cent in the quarter, and 9.7 per cent over the year.

In all, 350 of the 672 items in the CPI rose in price. They represented a smaller percentage of the index than three months ago, but there were fewer price falls as well.

A measure of core inflation, the trimmed mean - which disregards the highest rises and largest falls and focuses on the masses of prices in between - rose 0.7 per cent in the quarter and 3 per cent for the year.

There continues to be a stark contrast between tradables and non-tradables inflation. Tradables are goods and prices which are imported or compete with foreign goods, either here or overseas, while non-tradables reflect wholly domestic markets.

The non-tradables component of the CPI rose 1.1 per cent in the March quarter and 4.2 per cent over the year. It includes central and local government charges, up 1 per cent in the quarter and 4.6 per cent annually.

The tradables component fell 0.5 in the quarter and is up only 0.8 per cent for the year, reflecting the dollar's strength.