There is more to the CPI than increases in GST.

From the Bank of New Zealand:

This morning’s softer-than-expected Food Price Index for December (-0.8%) has caused us to “round down” our estimate of Thursday’s Q4 CPI. We now figure this will rise 2.5% (4.2% y/y). Still, it’s stronger than the 2.3% (4.0% y/y) expected by the market and RBNZ. And while the Q4 result will be impacted by the lift in the Goods and Services Tax, it would be wrong to think that this is all there is to it. In fact, there are many other important upward, and downward, pressures bearing upon NZ consumer prices.

Inflation pressures:

* It seems that global commodity prices are raring their ugly head again, reminiscent of 2007/08.
* It is most likely that Fonterra’s auction on Wednesday will see an increase in the price of milk solids.
* Housing might be quiet but rentals have increased
* some firms might have taken the occasion of the GST hike to bump up prices by more than would be justified by the tax increase alone.
* Government levies – road user charges as an example.

Consequently, there are a number of forces threatening to maintain upward pressure on New Zealand’s inflation ahead and the Reserve Bank might need to adjust interest rates a little sooner. Remember that the Reserve Bank Act requires them to keep inflation between 1-3% in the medium term.

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