Inflation shoots up to 5.9pc

New Zealand’s inflation rate has jumped to 5.9 per cent, Stats NZ has reported.

Consumer prices during the three months to the end of December put the annual inflation figure at its highest level since June 1990.

That was the same year that Jim Bolger became prime minister and Auckland hosted the Commonwealth Games.

The annual inflation rate was up from 4.9 per cent during the September quarter and is expected to keep pressure on the Reserve Bank to continue ratcheting up interest rates.

The central bank will next reset the official cash rate on February 24.

ANZ’s economists had said it would be no surprise if inflation landed anywhere between 5.5 per cent and 6.5 per cent, while the Reserve Bank had forecast a 5.7 per cent lift.

ASB economist Mark Smith forecast that inflation would rise above 6 per cent in the current quarter, saying it no longer looked ‘‘transitory’’.

‘‘A broadening front of rising inflation is emerging that will be difficult to slow, and we expect annual CPI inflation to remain above 3 per cent well into 2023.’’

The Reserve Bank clearly had ‘‘more work to do’’, raising the chances of the official cash rate rising faster and to a higher level than the central bank had previously signalled, he said.

ANZ agreed that inflation had ‘‘some serious momentum’’.

Stats NZ manager Aaron Beck said New Zealand was not alone, ‘‘with many other OECD countries experiencing higher inflation than in recent decades’’.

Inflation is on the rise globally due to fiscal and monetary policies put in place to cushion the economic impacts of Covid, and supply chain problems restricting the production and distribution of many goods.

The annual inflation rate in the United States jumped to 7 per cent in the December quarter, and rose more mildly in Australia to 3.5 per cent.

New Zealand’s higher inflation rate was partly explained by ‘‘imported’’ inflation, with petrol prices increasing 30 per cent in the year to the December quarter.

But Stats NZ said ‘‘nontradeable inflation’’ – the increase in prices of goods and services whose prices are largely determined locally, rather than by international markets – also increased to 5.3 per cent, from an annual rate of 4.8 per cent in the September quarter.

Rents rose 3.8 per cent over the year on average, and the price of building new houses leapt 16 per cent as shortages of building materials and construction workers pushed up costs.

‘‘The inflation rate for construction prices has been much higher in 2021 than we have typically seen in previous years,’’ Stats NZ reported.

It reported food prices fell 0.7 per cent over the year.

National Party finance spokesman Simon Bridges said Finance Minister Grant Robertson needed to ‘‘rein in his spending to avoid adding more fuel to the inflationary fire’’.

‘‘With wage growth of only 2.4 per cent, well under half of inflation’s growth, New Zealanders are going backward. At the same time, we’ve got rising interest rates and record amounts of government spending,’’ he said.

Capital Economics economist Ben Udy said the 1.4 per cent quarterly increase in the consumer price index in the three months to the end of December was slightly above consensus forecasts of a 1.3 per cent rise.

‘‘Looking ahead, we suspect inflation is approaching its peak,’’ he said.

‘‘Inflation is now consistent with the high level of inflation signalled in business surveys in recent months. And as capacity constraints ease in 2022, so too should price pressures.’’

‘‘Looking ahead, we suspect inflation is approaching its peak.’’

Ben Udy

Capital Economics economist