5 per cent inflation 'yesterday's news'

By Eloise Gibson, Brooke Donovan

Inflation is at an 18-year high thanks to historic price rises this year, economists say - but conditions should ease from here.

ASB, Westpac and ANZ National economists predicted inflation would rise to as high as 5 per cent for the year ending September when Statistics New Zealand publishes food prices and inflation figures tomorrow. The Reserve Bank's target is to keep annual inflation to between 1 and 3 per cent.

But ANZ National said the inflation figure would already be "yesterday's news" as the price rises of recent months flowed through to the official statistics.

Economists said it was only a matter of time before the effects of global market turmoil were seen in lower household bills.

For most of 2008, rising petrol and food prices, high interest rates and accelerating inflation put pressure on wallets. But with tax cuts already introduced and more on the way, likely lower food bills and petrol prices already going down, relief is at hand.

Petrol and butter prices have already fallen in what may be one of the first signs of an easing.

Shell, BP and Gull all dropped their prices on Friday, pointing to a decrease in the international price of refined fuel.

An informal Herald survey showed butter, milk and cheese were also heading towards more normal levels as world dairy prices plunged.

This month Fonterra said it would lower the price of its dairy products in the coming months after an 11 per cent drop in auction prices for its whole milk powder.

ANZ chief economist Cameron Bagrie said there were "a lot of positives out there" for New Zealand families.

"Oil prices are coming down so there will be lower petrol prices. We've got lower food prices, particularly dairy. Inflationary pressures are starting to come off, we've got tax cuts and lower interest rates so it's a collection of positives."

Robin Clements, senior economist for UBS, said there was "relief" for consumers.

"We've gone from everything being stacked up against the consumer with food and petrol going through the roof, to those things coming off their peaks."

Massey University finance professor Ben Jacobsen said prices for almost all commodity prices were coming down quickly and dramatically, including for non-food items like precious metals and energy. Cheaper consumer prices should show up soon, with a "huge" interest rate drop.

But economists tempered the good news with a note of caution.

Rising unemployment would spell bad news for some, and while falling commodities prices were good for our wallets they spelled bad news for the wider economy.

- NZ Herald

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