Budget tax overhaul set to fuel inflation spike
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10:30 AM Friday May 21, 2010


A trolley load of shopping will cost more soon, as Treasury increases its inflation predictions. Photo / Martin Sykes

Inflation is set to spike higher than economists had predicted as a result of the increase in goods and services tax and other levies and imposts, adding to expectations the central bank will begin hiking interest rates at its next meeting on June 10.

The Treasury is forecasting the consumer price index will jumped to 5.9 per cent in the first quarter of 2011, more than twice its estimate of six months ago. The department raised its projection for the track of CPI for the next four years.

Consumers are expected to lift spending, particularly on durable goods, ahead of the GST increase on Oct. 1. Real output is expected to grow about 3 per cent a year starting with a 3.2 per cent gain in the 12 months through March 2011, having contracted 0.3 per cent in the year just past. Reserve Bank Governor Alan Bollard had urged the government to be wary of creating too much fiscal stimulus, creating a bigger monetary policy job for the central bank.

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