Inflation at its highest level since 2011

There has been a marked turnaround in New Zealand’s inflation environment in recent months. After lingering below the Reserve Bank’s 1 to 3% target band for much of the past two years, inflation jumped higher in the March quarter, with the annual rate climbing to 2.2%. This is the first time that inflation has been above the Reserve Bank’s 2% target midpoint since September 2011.

Underlying much of the pick-up in inflation have been two big factors. First, the early part of 2017 saw strong increases in the prices of some fresh produce, such as apples and carrots. Those increases were related in part to climatic conditions. And with poor weather continuing in March and April, we're likely to see some further weather impacts on prices in the June quarter also. Nevertheless, this still represents only a temporary boost to inflation.

Second, petrol prices have risen over the past year in response to higher global oil prices, and they are currently around 12% higher than this time last year.

Both food and fuel prices can be volatile, with factors unrelated to the strength of domestic economy causing sharp swings (such as unseasonable weather conditions). However, even outside of these categories we’ve been seeing a firming in New Zealand’s inflation environment. That’s been reflected in the various measures of core inflation which track the underlying trend in price movements, and which have been rising steadily since mid-2016.

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