18 Jul 2012

Interest rate rises unlikely this year: economist

6:54 am on 18 July 2012

Benign inflation pressures are set to continue, with Deutsche Bank chief economist Darren Gibbs saying interest rate rises are at least a year away.

The Consumer Price Index rose by 0.3% in the three months to June, led by rises in power prices, rent and beer, offsetting cheaper broadband, televisions and used cars.

On an annual basis, inflation stood at 1% the lowest annual rate since the end of 1999, and it is now at the bottom end of the Reserve Bank's 1% to 3% target band.

Some economists are concerned housing cost pressures could flare quickly, pointing to higher rents in Auckland and parts of the South Island outside Canterbury and higher construction costs.

But Mr Gibbs says any price pressure is specific, rather than the general pressure which would trigger concern at the central bank.

He says interest rate rises are unlikely this year.

"The risk of course is that things continue to turn nasty offshore. We've seen weak data in Europe and overnight some very soft data out of the US as well and there are continued worries around the likes of China - all of that has the capacity to undermine our domestic recovery."

Mr Gibbs says he is picking prices will remain in check and expects inflation to fall below the Reserve Bank's 1% to 3% range.