Petrol prices are expected to push inflation to a 2 -year high when the March consumers price index is released on Monday.
In a Reuters poll of 15 market economists, the average forecast is a 1 per cent rise in the CPI for the quarter, pushing the annual rate to 4.6 per cent from 4 per cent in December.
That is despite a high dollar putting a lid on imported inflation and weak pricing power curbing the homegrown variety.
Prices at the pump rose 20c a litre, or 10 per cent, during the first three months this year. Westpac economist Dominick Stephens expects petrol alone to push the CPI up 0.6 per cent.
Food prices rose 1.2 per cent in the quarter and, while not much more than the 1 per cent recorded in the March quarter last year, it is enough to push the CPI up 0.2 per cent.
A jump in the excise on tobacco - the second of three - which came in on January 1, will also have raised the CPI around 0.2 per cent.
On top of impacts in the latest quarter, the annual inflation rate reflects the GST increase last October - worth 2 percentage points on its own - along with higher ACC levies and the introduction of the emissions-trading scheme last July.
ANZ economist Mark Smith said while there was a strong cost-push element to the latest inflation numbers, demand-pull pressures were not as evident.
"We have assumed the soft demand environment will lead to further retail discounting for household contents, consumer durables and apparel," he said.
"Retail margins are already wafer thin, with most retailers not having the pricing power to push through price increases. We assume the retail environment will remain tough for the time being."
Retailers are not alone. The New Zealand Institute of Economic Research's quarterly survey of business opinion found a much higher proportion of firms experiencing and expecting cost increases than those reporting or planning to raise their own prices.
"Demand remains low across the board," Stephens said.
"Consumer spending is feeble. If construction slowed any further it would be standing still."
ASB economist Christina Leung said inflation pressures in the economy were contained for now. "However, we expect inflation pressures to re-emerge next year as improvement in demand allows businesses to pass on rising costs."
ASB expects higher global prices to underpin food and fuel rises over the rest of this year and post-earthquake rebuilding activity to put capacity pressures on the building sector nationwide next year, resulting in an acceleration of construction cost inflation.
Smith said a higher headline inflation rate was not immediate cause for concern, as it was strongly influenced by one-off factors - but one-off price increases were becoming too frequent. "Annual headline inflation above 5 per cent, even temporarily, carries the risk of spilling over into more general pricing pressure."
Website of the Year