17 Jan 2011

Economists expect inflation spike

2:30 pm on 17 January 2011

Economists expect last year's rise in GST and escalating petrol prices to have contributed to a spike in inflation in recent months.

The Consumer Price Index, which is a gauge of inflation, is released on Thursday morning.

According to a Reuters poll, most economists expect the index to have jumped 2.3% in the three months to December, compared with the previous quarter.

That would take the annual rate of inflation to 4%, compared to the seven-year low of 1.5% recorded in the year to September.

Westpac's chief economist, Brendan O'Donovan, says climbing petrol prices and GST are to blame.

Mr O'Donovan says the Reserve Bank is unlikely to be worried by an annual inflation rate of 4% despite it being outside its 1-3% target band, and is not likely to raise rates until September or later.

He says inflation could peak at 5% later this year, especially if high commodity prices and bad weather push up food prices.

The Goods and Services Tax rose from 12.5% to 15% in October.