Inflation Surges as New Zealand General Election Nears

New Zealand's inflation rate, as measured by the consumer price index, spiked 1.5 percent in the September quarter.

The annual rate inflation is now 5.1 percent, clearly above the level of the inflation target of 1 to 3 percent over the medium term incorporated in the Policy Targets Agreement between the Minister of Finance and the Governor of the Reserve Bank.

Of course, the medium term inflation target has become secondary in the short run to the policy objective of combating the current economic recession and maintaining the stability of New Zealand's financial system in the present global crisis.

Inflation is expected to moderate as the global recession feeds through into the New Zealand economy and as oil prices in particular fall. Offsetting this trend may be the depreciation of the Kiwi dollar but importers will be under pressure to shave profit margins instead of passing on rising costs as domestic demand weakens.