Key: We can't help your price pain

John Key. Photo / Jason Dorday

Prime Minister John Key yesterday acknowledged New Zealanders were "feeling the pinch" as prices rose at their fastest rate in two years led by fuel costs, something he said the Government could do little about.

But Labour leader Phil Goff said the Government's 2.22-percentage-point GST increase had been "a critical factor" in rising inflation, which was hitting low- and middle-income earners the hardest.

Inflation as measured by the consumer price index rose 4.5 per cent in the year to March, its fastest rate since just before Mr Key's Government came to power in November 2008.

The increase was led by petrol and diesel prices with significant upward pressure from tobacco and food prices.

Mr Key said the inflation figure was slightly lower than expected.

Nevertheless, he said, "we appreciate that people are feeling the pinch from many of these price rises, particularly petrol price increases".

Inflation of 0.8 per cent in the three months to March was "entirely due to oil and tobacco increases" and international oil prices were outside the Government's control, he said.

The tobacco price rise, the second of three excise increases announced in the Budget last year, was "something Labour enthusiastically supported".

But Mr Goff said rising prices for necessities that could not be avoided were "really going to stretch so many people who are low- and middle-income earners".

"This will put families under pressure," the Labour leader said.

Although rising prices were partly influenced by international commodity prices they were also "critically influenced by the rise in GST".

"It will not be compensated for by the tax cuts. Those on high incomes of course will be fine," Mr Goff said.

But Labour would not take GST off petrol or reverse the present Government's across-the-board GST increase.

Exactly how Labour would tackle the wider issue of inflation would be revealed in its taxation and savings policy closer to the election, he said.

Mr Key said there was little his Government could do about petrol prices. The money it collected from excise tax on fuel was committed to road building and other transport spending and while its GST take rose slightly as petrol prices did, that was offset by lower tax collection elsewhere as consumers spent more on fuel, leaving them less to spend in other areas.

"Like everyone else, we're frustrated by higher petrol prices," Mr Key said. "It's just a fact we have to live with at the moment."

GOING UP

* 4.5 per centannual inflation rate

* 17 per centpetrol

* 11.4 per centcigarettes and alcohol

* 4.8 per centfood