Statistics New Zealand's consumer price index (CPI), measuring inflation, showed annual inflation fell to 0.7%, the lowest rate in 14 years, and as expected by analysts, for the fourth consecutive quarter it had been below the Reserve Bank's target range of 1-3%.
The annual CPI increase included a rise of 0.2% for the quarter to June, where increases in electricity and housing-related prices were countered by lower petrol and motor car prices.
While present inflation levels are very low, for those families struggling the most, inflation might be undermining more of their household budgets than is revealed in the national statistics.
ASB senior economist Jane Turner said that overall, the result of the second-quarter CPI was ''relatively close'' to Reserve Bank and market expectations, and as such there were ''few fresh implications''.
''Inflation remains very low, having sat below the Reserve Bank's's target band of 1-3% for a full year,'' she said in a statement.
However, inflation is expected to rise over the next few years and return to the upper half of the target band by 2015, Ms Turner said.
''Over the past year, much of the unexpected weakness has stemmed from aggressive discounting on retail goods and increased competition in the telecommunications sector driving communications prices lower,'' she said.
But Council of Trade Unions economist Bill Rosenberg estimated that the lowest income 30% of New Zealand households have faced inflation during the year 0.2 to 0.3 percentage points higher than the official CPI.
''Electricity prices are still rising much faster than other prices, up 2.6% in the three months to June, and 3.4% for the year.
''Essentials like this hit all households, but for low-income households, a much greater proportion of their spending goes on energy,'' Mr Rosenberg said in a statement.
He also highlighted the increase in housing prices, particularly rents, up 2.1% for the year, which also hit low-income families harder.
Ms Turner said the low inflation rate at present would continue to hold the Reserve Bank back from using an increase in interest rates as a financial intervention to cool the housing market.
''Higher interest rates right now remain inappropriate for the Reserve Bank's inflation mandate. Instead, restrictions on high-loan-to-value-ratio mortgage lending are highly likely to be introduced,'' she said.
Westpac senior economist Michael Gordon said the NZ dollar fell roughly 30 basis points on the weaker-than-expected headline inflation.
Yesterday's inflation details would keep the Reserve Bank's attention ''firmly focused'' on the medium-term inflation outlook, which is for inflation pressures to rise. Statistics NZ visits 3000 shops across the country, collecting prices for the CPI and to check product sizes and features.
Inflation
Rises in quarter to June
Electricity up 2.6%
Vegetables up 7.0%, influenced by tomatoes and lettuce
New built houses up 1.7%
Housing rentals up 0.4%
Falls in quarter to June
Petrol prices down 2.5%
Fruit down 4.5%, influenced by apples and kiwifruit
Second-hand cars down 1.9%
New cars down 1%
SOURCE: STATISTICS NZ
