Inflation falls to 1.5pc but GST rise will force it up

Petrol prices fell 1.3 per cent, even with the imposition of a carbon cost through the Emissions Trading Scheme. Photo / Peter Meecham

Inflation has fallen to 1.5 per cent, its lowest annual rate for 6 years, before this month's increase in GST pushes it back up again.

The consumers' price index rose 1.1 per cent in the September quarter, slightly more than the median market forecast of 1 per cent or the Reserve Bank's pick of 0.9 per cent.

But, unusually, the June quarter's rise was revised down, from 0.3 to 0.2 per cent.

The make-up of the latest increase was much as expected.

Central and local government charges rose 3.5 per cent in the quarter, or 5 per cent over the year. Without them, the CPI would have risen 0.8 per cent in the quarter and 1.1 per cent over the year.

They included a 4.4 per cent rise in local body rates, a third of this year's increase in tobacco excise, the annual inflation-adjustment of the alcohol excise and an ACC-related increase in vehicle licensing fees.

Petrol prices fell 1.3 per cent in the September quarter, even with the imposition of a carbon cost through the Emissions Trading Scheme.

Electricity prices increased 2.8 per cent. Statistics New Zealand said it was unable to quantify the impact of the ETS on electricity prices, but it did note the impact of power companies charging the 15 per cent rate of GST on electricity consumed in September but not billed until this month.

Some telecommunications charges also jumped the gun in the same way. But Statistics NZ said that, when rounded, the quarterly increase in the CPI would still have been the same, 1.1 per cent, without those GST-related increases in power and phone bills.

Rents showed little sign of an impact from the tax changes announced in the Budget, rising 0.5 per cent in the quarter and 1.7 per cent over the year. Food, as expected, was the biggest contributor to the latest CPI increase, explaining nearly 40 per cent of the rise. A 12.6 per cent rise in fruit and vegetables - partly seasonal and partly unseasonably bad weather - was the main driver.

Excluding food, a volatile component of the CPI, it would have risen less in the quarter (0.8 per cent) but more over the year (1.9 per cent).

Another measure of underlying inflation, the 10 per cent trimmed mean, which excludes the biggest price rises and falls, also indicated less inflation in the latest quarter (0.8 per cent) but rather more (1.7 per cent) for the whole year.

Prices rises were more widespread, and, on average, larger, in the September quarter than in the June quarter, while price falls were fewer and smaller.

Tradeables inflation, reflecting items whose price is affected by international prices or the exchange rate, was 0.9 per cent. That followed three quarters in which it was either negative or barely positive.

Non-tradeables inflation, the other half of the index, also gathered pace, from 0.6 per cent in the June quarter to 1.2 per cent in September.

Westpac expects the inflation rate to hit 4.5 per cent by the middle of next year, while ANZ and ASB expect it to top 5 per cent. The Reserve Bank's forecast is 4.8 per cent.

The numbers:

* 1.1 per cent increase in consumers price index for September quarter.

* 1.5 per cent annual inflation rate.