By BRIAN FALLOW
There is little sign of widespread inflation flowing from the weak dollar or higher fuel costs in spite of inflation hitting 2 per cent in the year to June 30.
Some economists take the data as increasing the chances that Reserve Bank governor Dr Don Brash will leave interest rates unchanged at his next review on August 16. Others still expect the bank to buy some extra insurance against pipeline inflation pressures, by raising rates 25 basis points.
The consumer price index rose 0.7 per cent in the June quarter, pushing the annual rate to 2 per cent.
But more than half the increase arises from two factors the Reserve Bank cannot influence and is supposed to ignore when setting policy:
A tax increase on tobacco pushed up the CPI by 0.24 per cent. Its effects will also be felt in the September figures, the lag reflecting the fact that retailers are not supposed to apply the increased tax to existing stock.
Petrol prices boosted the CPI by 0.15 per cent. Petrol prices have risen 25 per cent over the past year.
Another contributor was a 10 per cent rise in international air fares. That is a purely seasonal phenomenon. On an annual basis international fares have fallen 2 per cent.
Medical insurance costs rose 10 per cent.
Construction costs rose 1 per cent, but with the building sector slowing down that should not be a problem.
Those five factors account for all the CPI's increase. In the rest of the index, rises were modest and matched by falls in other items.
Statistics New Zealand said price increases were less widespread than in the March quarter with rises for goods and services representing half of the index, against 70 per cent previously.
Household appliance and new cars - items which might have been expected to rise given the weakness of the New Zealand dollar - fell.
WestpacTrust chief economist Adrian Orr said there was not a lot in yesterday's figures for the Reserve Bank to feed on in terms of looking forward.
"The question is whether they do the watch, worry and wait thing, with no change in August then carrying on afterwards when they have got more data, or whether they buy some insurance."
Mr Orr, who until recently was the Reserve Bank's chief economist, is picking it will raise rates 25 points next month and another 25 points before the year's end, judging by past performance.
ANZ Bank economist David Drage said: "It would appear that tight domestic trading conditions are keeping a lid on cost pressures which have been very evident in producer price and import price data over the past few months."
ANZ expects annual inflation to be around 3 per cent by the end of the year.
"It is looking increasingly unlikely there will be any increase in the official cash rate in August.
"We think there is the possibility of one or two slight increases beyond that but they are very much contingent on a recovery in confidence."
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