Inflation is at a 13-year low and food prices are falling - but consumers are struggling to see the benefits.

Annual inflation was 1 per cent for the year to June 30 - the lowest since 1999 - Statistics New Zealand says.

A year ago, after GST had been increased, inflation was at 5.3 per cent, a 21-year high.

The Consumer Price Index increase is at the bottom end of the Reserve Bank's target of 1 to 3 per cent inflation.


Grocery prices have fallen slightly overall. Vegetable prices fell 5.1 per cent and milk, cheese and egg prices by 3.7 per cent.

Lower prices for telecommunication services (down 9.1 per cent) and audio-visual equipment (down 19 per cent) also helped cut inflation.

But budgeting services and unions say wages and salaries remain below the cost of living for many families.

Many people would find any savings quickly swallowed by increases in other areas such as electricity and rent.

Electricity prices are 3.7 per cent higher than their previous peak in the three months to June last year.

The cost of house insurance has risen by 37.2 per cent and contents insurance is up 11 per cent.

Higher prices for cigarettes and tobacco (up 13.5 per cent) and housing rents (up 2.3 per cent) were the most significant upward contributors.

Yesterday, shoppers at Mt Albert Pak'nSave told the Herald their budgets remained as tight as ever.

"I've come back here because I found other shops are just a bit too dear," said Linda Rogers, 62, who lives with her daughter.

"I just cut back as much as I can. And it gets to a stage where you can't cut back any more, so you just do without something.

"I don't eat as much red meat as I used to, and substitute it with veges and chicken - things that are cheaper."

Mother-of-three Debbie Howard, 43, said the inflation rate was a surprise, as it seemed prices were still going up.

She said any savings were quickly negated by price rises in other areas such as water and power.

Pensioner David Christie, 69, said he was glad he had the time to hunt out specials and bargains.

"The working person doesn't have that time, and we need to use it."

Mangere Budgeting Services Trust chief executive Darryl Evans said the inflation statistics were at odds with the number of families requesting food parcels.

"Food prices appear to have gone slightly lower, but then you've seen huge increases in private rentals - which is the biggest hardship for most of our families.

"The rent has gone up, and 65-70 per cent of the weekly income goes to the private landlord anyway, so it's incredibly tough to make ends meet."

In the past month his trust had seen an increase in requests for blankets and warm clothes because rising power bills meant families were going without heating.

"The kids are freezing in these houses that are very often uninsulated, and in most cases there's no form of heating."

Council of Trade Unions economist Bill Rosenberg said the low inflation should provide an opportunity for workers' wages and salaries to catch up "lost ground".

"The average hourly ordinary time wage in March 2012 was lower than it was in March 2009 in real terms - that is, after taking inflation into account."

As expected, the high exchange rate and stable petrol prices contributed to limited tradeables inflation, which fell by 1.1 per cent over the past year.

- additional reporting, APNZ