20 Apr 2020

Inflation up 0.8% in March quarter

2:24 pm on 20 April 2020

Higher tobacco taxes and rising household costs, including rents, have pushed annual inflation its highest level in nearly a decade.

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Official figures show the consumers price index rose 0.8 percent in the three months to March, taking the annual inflation rate (CPI) to 2.5 percent from 1.9 percent.

"Measures to slow Covid-19... means that some parts of the CPI may not fully capture Covid-19-related price movements later in the quarter," Stats NZ prices senior manager Paul Pascoe said.

The 11 percent rise in the tax on tobacco, pushed the average cost of a single cigarette to $1.70, or $41.49 for a packet of 25.

Excluding the tobacco tax rise, consumer prices would have risen 0.5 percent for the quarter.

Fresh fruit and vegetables were more expensive with household costs including rents also rising.

The rises offset cheaper fuel and air travel.

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The inflation numbers were double economists' and the Reserve Bank's (RBNZ) forecasts.

However, the strong inflation numbers, which would normally have raised eyebrows in financial markets and at the RBNZ, were quickly dismissed as old news and not relevant.

"We are now in the midst of the most significant and synchronised economic contraction in a generation. Labour market conditions are loosening, and underlying inflation pressures diminishing. And there's plenty more to come," ANZ senior economist Miles Workman said.

"With this outlook in mind the Q1 read feels like ancient history."

The economic impact from the lockdown is expected to dampen inflation pressures, with businesses unable to operate normally or raise prices, and consumers expected to be cautious as they protect weak incomes.

"We foresee annual headline inflation decelerating to the bottom of the RBNZ's 1-3 percent target band by the end of the year and remaining below this level throughout 2021, with only a gradual recovery thereafter," Workman said.

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