"Another factor was the Healthy Homes Standards introduced in July 2019. Some landlords have upgraded their properties in order to meet the new standards and may have passed on the costs to the tenants."
Wellington's rental shortage has gained attention recently, but the biggest increase was actually in the North Island excluding Wellington and Auckland, where annual rents rose 4.9 per cent.
Rents in Wellington increased 4.5 per cent in 2019, by 1.9 per cent in Auckland and 1.3 per cent Canterbury.
Regulation 'making it worse'
National finance spokesman Paul Goldsmith said while the main driver of housing costs were supply shortages, added regulations imposed by the Government "had made things worse", driving up rents.
"What the Government doesn't seem to understand is it's not compulsory for people to rent out their houses," Goldsmith said.
"If you do half a dozen things in combination that make it a less appealing prospect the short-term impact is that, if you have a number of people withdraw from the market, that just compounds the shortage," Goldsmith said.
"It doesn't explain everything, but it's making it worse."
Airfares up
Combined with increases in petrol prices and airfares, household inflation rose by 0.5 per cent in the quarter, pushing annual inflation to 1.9 per cent, the highest in more than a year.
Domestic airfares climbed 12 per cent in the December quarter, part of which was a seasonal increase around the summer holidays. Economists have also pointed to Jetstar's retreat from some regional services as a driver for higher domestic ticket prices.
International airfares climbed 9.3 per cent in the December quarter, driven by a seasonal increase. Prices fell in 2019 as a while however, continuing a trend which has seen international airfares, as measured in the CPI, fall by about 20 per cent since 2014.
Petrol prices also rose 1.6 per cent in the December quarter, but were down 0.8 per cent for 2019 as a whole. In the South Island prices fell in the December quarter, especially in Canterbury, down 3.6 per cent.
While rising inflation eats into household spending power, the latest news is likely to be welcome news for the Reserve Bank, which is tasked both with controlling inflation and maximising sustainable employment.
The central bank is meant to keep inflation as close as possible to the mid-point of a 1-3 per cent inflation band. While inflation has stayed consistently above 1 per cent in recent years, only in one quarter since 2012 has it reached 2 per cent.
Friday's inflation release was marginally stronger than bank economists were expecting and ahead of the 1.6 per cent the Reserve Bank was expecting in its last major forecasts from November.
Increasingly financial markets have been suggesting the odds that Reserve Bank will have to lower interest rates to stimulate inflation this year are dropping.
ANZ economist Miles Workman said Friday's release should hit 2 per cent this year, but was not likely to be concerning for the Reserve Bank.
"We think economic activity is poised to gradually accelerate over the year ahead and grow around trend over the medium term, with resurgence in the housing market, improving business sentiment and the promise of a little extra government spending on key infrastructure all supporting," Workman said.
"Unless something untoward happens, we think the RBNZ will keep the [official cash rate] at its current, stimulatory, level of 1 per cent for the foreseeable future."
