The cost of living is rising at the fastest rate in more than five years, with inflation jumping on the back of higher food and fuel prices.
Statistics New Zealand figures showed the consumer price index – the official measure of household inflation – rose by 1 per cent in the first three months of 2017.
Annual inflation for the year to March 31 climbed to 2.2 per cent, higher than economists were expecting, and the highest level since September 2011, when inflation was boosted by an increase in GST.
Stronger fruit and vegetable prices, coupled with an increase in the price of petrol and the annual increase in the tax on cigarettes and tobacco, boosted inflation.
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The jump in inflation means that the cost of living is now climbing at faster than the labour cost index, a measure of the speed at which pay rates are rising across the economy.
ASB chief economist Nick Tuffley said the factors which pushed up inflation were broad. Even excluding the increase in tobacco taxes and petrol price increases, inflation was 1.5 per cent.
Food prices were boosted by stronger prices for apples and milk, both of which were seeing strong international prices, which could push up demand locally.
“We expect food prices will remain elevated over coming months due to poor weather affecting crops,” Tuffley said.
Westpac acting chief economist Michael Gordon said the biggest surprise in the figures were that the price of goods such as clothing and electronics, were not as weak as expected given how strong the New Zealand dollar had been at the start of the year.
“Those firmer prices may suggest that retailers are starting to rebuild margins off the back of solid domestic demand,” Gordon said.
“Business surveys signal that many retailers are looking to increase their prices further over the coming year.”
The rise pushes inflation above the mid-point of the Reserve Bank’s 1-3 per cent target for the first time since Graeme Wheeler became governor.
The New Zealand dollar jumped against all major currencies when the figures were announced, on the possibility that higher inflation could bring forward a likely interest rate hike.
Before the figures were announced, most economists predicted the Reserve Bank would not begin to raise interest rates until at least 2018.