Inflation has hit a 32-year high on the back of higher housing, food and fuel costs.

Stats NZ said consumer prices increased by 1.7 percent for the three months ended June, pushing the annual rate to 7.3 percent from 6.9 percent.

Woman is going to use contactless means of payment in supermarket. Close up of female hands holding necessary cash equipmentPhoto: 123RF

Stats NZ said consumer prices increased by 1.7 percent for the three months ended June, pushing the annual rate to 7.3 percent from 6.9 percent.

That was above expectations and the biggest annual rise since June 1990.

The costs of building and running a house were the single biggest drivers for the quarterly and annual increases.

“Supply-chain issues, labour costs, and higher demand have continued to push up the cost of building a new house,” general manager Jason Attewell said.

Food prices rose 1.3 percent in the quarter, on the back of more expensive groceries and takeway meals, while transport costs rose 2.3 percent, the same level of increase as household costs.

On annual basis, household costs and fuel were the major influences.

The numbers showed a solid core of domestic inflation, known as non-tradables inflation, which rose a record 6.3 percent for the year, while tradable inflation, a measure of imported inflation, rose 8.7 percent for the year.

Even stripping out some of the more volatile items, various measures of core inflation were sitting about 6 percent a year.

Stats NZ said New Zealand’s inflation rate compared with a 9.6 percent average rate for developed nations, 9.1 percent in the US and UK, and 5.1 percent in Australia.

Financial markets responded by lifting the value of the New Zealand dollar and sending some wholesale interest rates higher, reflecting an increased risk of a higher rise in the official cash rate and an economic “hard landing”.

Tougher Reserve Bank response

ANZ chief economist Sharon Zollner said the Reserve Bank would be unpleasantly surprised by the numbers.

“Domestically driven inflation tends to stick around a lot longer than the imported variety, and as such, the mix of inflation pressures revealed today demands a more aggressive RBNZ response.”

ANZ changed its interest rate forecast and now expected 50 basis point rises for the remaining three monetary policy decision this year taking the official cash rate (OCR) to 4.00 percent by year end.

“The strength in non-tradables and the core measures has only contributed to a sense of unease that a 75bp [basis point] OCR hike may in fact be on the cards,” Zollner said.

ASB senior economist Mark Smith said the continued tight labour market was adding to cost pressures and that would make the RBNZ’s measures to get inflation under control that more difficult.

“Unless labour market pressures concertedly ease, current high inflation outcomes run the risk of being increasingly entrenched.”

Finance Minister Grant Robertson pointed to the strength and volatility of overseas inflation and the effect it was having on New Zealand, but said the government was trying to ease the burden through the cuts in fuel taxes and increases in support for low income groups.

“There are no simple fixes in the face of global inflation and its impact here in New Zealand. Most economists believe that this level of inflation represents the peak of this cycle.”

“However, inflation will remain elevated for some time at levels above what has been experienced in recent times,” Robertson said, adding that low unemployment and government debt would support the economy.

National Party deputy leader and finance spokesperson Nicola Willis said the government could not keep blaming external events for high inflation and needed to take action at home.

“Spending more and announcing temporary measures won’t cut it. Spending billions to fight runaway inflation just puts more fuel on the fire, pushing up inflation and interest rates.”

She said measures such as fixing immigration settings and stopping adding costs to business would go some way to easing cost pressures.

Transport Minister Michael Wood said the government could take some of the pressure off prices but not change the international factors were driving inflation.

Yesterday, the government extended measures on fuel tax and public transport until next January.

Wood said everyone was feeling the pressure of fuel costs and the government was carefully monitoring to see that supplier profit margins were not widening.