Cost of petrol surges 14 per cent

Petrol prices rose a further 5 per cent in the last week of last year. Picture / Michael Craig

Last October's GST rate increase pushed consumer prices up 2.3 per cent in the December quarter, making 4 per cent for the year.

The increase was in line with market and Reserve Bank expectations.

If the increase in GST from 12.5 to 15 per cent had been fully and immediately passed through to consumers it would have raised the consumers price index 2 per cent.

But some firms have preferred to take a hit to their margins at this point, while other highly seasonal prices are surveyed only once a year, and for reasons to do with billing cycles a third of the GST impact on electricity prices was reflected in the September quarter's CPI.

Economists estimate that 1.7 or 1.8 percentage points of the latest increase can be attributed to GST, leaving the residual underlying rate well within the Reserve Bank's target band, especially when other Government policy-related increases are allowed for.

Petrol prices rose 6.8 per cent in the quarter and 14.2 per cent over the year. Statistics New Zealand noted that those figures did not include a further rise at the pump of around 5 per cent in the last week of last year.

In addition to local tax increases, the price of crude oil has risen steadily and is now just shy of US$100 a barrel, ASB economist Christina Leung said.

While prices are still below the peaks reached in mid-2008, when they hit $2.18 a litre and helped drive the inflation rate briefly over 5 per cent, Leung said the sharp increase in recent weeks was likely to have dented consumer confidence and helped restrain discretionary consumer spending.

Food prices, which make up nearly 18 per cent of the index, rose 2.1 per cent in the quarter and 4.6 per cent over the year.

Westpac economist Michael Gordon said: "We expect upward pressure on food prices in the coming quarters following on from strong increases in world commodity prices and the Australian floods."

The housing and household utilities group, which makes up almost a quarter of the CPI, increased 1.6 per cent in the quarter and 3.8 per cent in the year.

It includes rents, which are not subject to GST and which rose just 0.2 per cent in the December quarter. That raised some eyebrows, as rents had increased by a consistent 0.5 per cent over the three previous quarters.

"It implies scant pressure on housing supply, still, just when we thought the rate of under-building over the last couple of years might by now have worked off the over-building that preceded it, amid ongoing population growth," Bank of New Zealand economist Craig Ebert said.

"Then again as an economy-wide average [it] might simply be slow in reflecting the pick-up we are detecting in rents now being renegotiated, at the margin."

Among the categories where prices rose less than the GST increase would have warranted were major household appliances, up 1 per cent, and clothing and footwear which were flat overall.

Audio-visual equipment fell 1.7 per cent, but that was less than average quarterly fall of 3.8 per cent for such wares over the past decade, Gordon said.

Looking ahead, Deutsche Bank chief economist Darren Gibbs expects the March quarter CPI to rise 0.8 per cent, pushing the annual rate to 4.5 per cent en route to a peak of 4.7 per cent in June.

ON THE RISE

Consumers price index

* 4 per cent increase for year to December
* 4.6 per cent increase in food prices
* 14.2 per cent increase in petrol prices