Statistic New Zealand's consumer price index (CPI), the official measure of inflation, will be released tomorrow and is expected to show a 0.5% increase in the three months ended September, with a seasonal rise in fruit and vegetable prices underpinning the increase.
The food price index increased 1.1% in September, led by a 12% rise in fruit and vegetable prices. Those prices should ease in the next quarter.
ASB economist Jane Turner said the other large contributor was the annual review of local authority rates.
"We are assuming a nationwide increase of 4.8%."
The Auckland council announced the average rates increase across Auckland would be 3.6%.
Wellington and Dunedin had announced increases of 4.9% and Christchurch rates would increase by 7.8%.
An increase of 4.8% would be slightly higher than the increase recorded in the September quarter CPI in the previous two years of 4% and 4.2%, she said.
The alcohol excise duty was regularly increased in the September quarter. The increase in the duty portion of alcohol prices was based on annual growth in the "CPI less credit services" category.
This year, the increase was 1.5%, much lower compared to the 2011 increase of 4.55%. As a result, ASB was expecting a smaller contribution to CPI from the increase in alcohol excise duty this year, Ms Turner said.
Beyond those third-quarter-specific price increases, continued inflation pressure was expected from construction costs and rents. They were largely a result of housing shortages in Auckland and Canterbury.
"We also expect to see continued growth in insurance costs as companies continue to pass on higher global reinsurance premiums," she saidThere were likely to be limited implications from the CPI release. The Reserve Bank's own assumption of a 0.5% rise in the third quarter was in line with ASB and close to market expectations of 0.6%.
"The Reserve Bank can remain relaxed for now around the inflation outlook but we expect to see a pick up in non-tradeable inflation soon as capacity pressures build in the New Zealand economy. This is likely to be offset by continued weakness in tradeable inflation as the New Zealand dollar remains elevated."
However, the Reserve Bank must remain wary, Ms Turner said. Once the deflationary impact of the elevated kiwi waned, the underlying increase in domestic inflation pressures would become more apparent.
The central bank would need to be careful that did not become ingrained in domestic price and wage setting behaviour.
