Inflation on target despite September price rise

Low Inflation does not seem to be affecting the cost of living for most people. Photo / Natalie Slade

Inflation is expected to have remained at the bottom of the Reserve Bank's target policy range of 1 per cent to 3 per cent in the year ended September, but prices in the September quarter are known to have risen.

Statistics New Zealand's consumer price index (CPI), the official measure of inflation, will be released today.

It is expected to show a 0.5 per cent increase in the three months ended September, with a seasonal rise in fruit and vegetable prices underpinning the increase. The food price increased 1.1 per cent in September, led by a 12 per cent rise in fruit and vegetable prices.

Those prices should ease during the next quarter.

ASB economist Jane Turner said the other large contributor was the annual review of local authority rates.

"We are assuming a nationwide increase of 4.8 per cent."

The Auckland Council announced the average rate increase across Auckland would be 3.6 per cent.

Wellington and Dunedin had announced increases of 4.9 per cent and Christchurch rates would increase by 7.8 per cent.

An increase of 4.8 per cent would be slightly higher than the increase recorded in the September quarter CPI in the previous two years of 4 per cent and 4.2 per cent, she said.

The alcohol excise duty was regularly increased in the September quarter. The increase in the duty portion of alcohol prices was based on annual growth in the "CPI less credit services" category.

This year, the increase was 1.5 per cent, much lower compared with the 2011 increase of 4.55 per cent.

As a result, ASB was expecting a smaller contribution to CPI from the increase in alcohol excise duty this year, Turner said.

Beyond those third-quarter-specific price increases, continued inflation pressure was expected from construction costs and rents. They were largely a result of housing shortages in Auckland and Canterbury.

"We also expect to see continued growth in insurance costs as companies continue to pass on higher global reinsurance premiums," she said.

There were likely to be limited implications from the CPI release.

The Reserve Bank's assumption of a 0.5 per cent rise in the third quarter was in line with ASB and close to market expectations of 0.6 per cent.

"The Reserve Bank can remain relaxed for now around the inflation outlook but we expect to see a pick up in non-tradeable inflation soon as capacity pressures build in the New Zealand economy," Turner said.

"This is likely to be offset by continued weakness in tradeable inflation as the New Zealand dollar remains elevated."