17 Jul 2012

Construction executive points to constraints on inflation

5:45 pm on 17 July 2012

A building materials executive says competition from imports could help contain inflation resulting from the rebuilding of Christchurch.

Annual inflation, as measured by Statistics New Zealand's Consumers Price Index, was 1% at the end of June, the smallest increase since 1999. Inflation peaked at more than 5% in the middle of last year.

But some economists expect a pickup next year as the rebuilding puts additional pressure on building costs.

Home ownership costs, seen by economists as a proxy for construction costs, rose at nearly three times the rate of inflation in the year to the end of June.

BNZ economist Doug Steel says the Reserve Bank cannot afford to ignore those pressures by keeping interest rates at record lows, even though inflation now sits at the very bottom of its target range.

But cement producer Cemex managing director Bhav Dhillon says the high dollar is boosting competition from imported building supplies and could help keep a lid on prices.

He says the weak outlook for international energy prices could also help moderate future increases.