KEY POINTS:
Finance Minister Michael Cullen is betting his October 1 tax cuts will help households struggling with spiralling food and fuel costs that have pushed inflation to new highs.
Latest figures show inflation rose to 4 per cent in the year to June 30, thanks to a higher-than-expected 1.6
per cent rise in the latest quarter.
That increase was mainly driven by a 4.9 per cent rise in transport costs and a 2.2 per cent jump in food prices in the three months to the end of June.
"We know that households are under pressure and we will deliver relief," Dr Cullen said yesterday.
"From October 1 all New Zealanders will get a tax cut that should provide some relief from rising prices."
Dr Cullen said yesterday's consumer price index figures confirmed global commodity prices were pushing prices up in New Zealand, and nothing could be done locally to counteract it.
But others are demanding pay rises for beneficiaries and low-wage earners as hefty food and fuel price increases spur inflation.
Green Party consumer affairs spokeswoman Sue Kedgley called on the Government to increase benefit levels and extend the $60 a week in work payment for low wage earners.
"Many basic healthy foods are becoming unaffordable for many people, and this is putting our children at risk," Ms Kedgley said.
Engineering, Printing and Manufacturing Union national secretary Andrew Little said the unexpected increase in living costs would be a factor in future negotiations.
Food price index figures show skyrocketing prices - up 8.2 per cent for the year to June - threaten to propel snacks such as cheese on toast and sandwiches into the luxury category.
A block of cheddar cheese has jumped 61.9 per cent in the year to June, and bread has climbed 15.2 per cent over the same period. The price of butter has almost doubled in the past year, up 86.6 per cent, and fruit and vegetable prices have jumped by 8.7 per cent for the year to June.
Transport prices, driven by rocketing petrol costs, made the most significant contribution to the CPI this quarter, increasing 4.9 per cent.
A 25.9 per cent jump in the cost of petrol was accountable for the most significant individual contribution to the CPI increase in the year to June.
AA Motoring Affairs general manager Mike Noon said the rise in inflation showed the cost of fuel was filtering through to the broader economy - but it was not unique to New Zealand.
"This is happening all over the world and it's causing a lot of disruption and a lot of concern," he said. "It's not just petrol or diesel, it's road-user charges and ACC levies.
"It means increased costs in other parts of the economy and on the other goods and services we buy."
But Westpac senior economist Doug Steel said higher wages and benefits - and more money in people's pockets - would only buoy inflation.
PRICE RISES
In the year to June
* Petrol 25.9%
* Milk 22%
* Cheddar cheese 61.9%
* Butter 86.6%