New Zealand Inflation

New Zealand

New Zealand: Inflation soars amid tax increase

January 20, 2011

Inflation surged in the final quarter last year on the back of the government's decision to increase the goods and services tax (GST) in October 2010. In the fourth quarter, consumer prices jumped 2.3% over the previous quarter, which more than doubled the 1.1% increase observed in the third quarter. The reading, which was broadly in line with market expectations of a 2.4% rise, represented the largest quarterly increase in more than two decades. Together with the increase in the GST from 12.5% to 15.0% on 1 October, the fourth quarter rise also reflected higher prices for transport (+4.3% quarter-on-quarter), which in turn were due to increasing fuel prices (+6.8% qoq). As a result of the quarterly increase, annual headline inflation jumped from 1.5% in the third quarter to 4.0% in the fourth quarter, pushing inflation to the highest level since the July-September period of 2008. In its December monetary policy statement, the Central Bank sees annual average inflation reaching 2.0% in the fiscal year 2010 (ending in March 2011) and 4.3% in fiscal 2011

Author:, Senior Economist

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