17 Oct 2012

Inflation at lowest annual rate for 13 years

8:50 am on 17 October 2012

Inflation has risen by less than 1% in the year to September, the smallest annual increase since December 1999.

The Consumers Price Index - the official measure of inflation - has risen 0.8% for the year to September.

Rises in cigarettes and tobacco, house rentals and electricity costs were offset by cheaper milk, telecommunications services and audio visual equipment, Statistics New Zealand says.

The annual rate of inflation is below the Reserve Bank's target of 1% to 3% and has sparked fresh calls from business, unions and political groups to cut interest rates to lower the dollar.

Westpac senior economist Michael Gordon says he expects new central bank governor Graeme Wheeler will keep rates on hold rather than cut them when he reviews the Official Cash Rate next week.

Construction activity in Christchurch is being closely watched as a potential driver of higher inflation, Mr Gordon says.

The cost of domestic air fares and communication services dropped over the past year due to more competition, and used car prices also fell.

Subdued inflation pressures showed through in falling prices for clothing and slow increases in alcohol prices, but Mr Gordon said the Reserve Bank is unlikely to cut interest rates from its record low of 2.5%.

For the September quarter, the Consumers Price Index rose 0.3%, Statistics New Zealand says.