Inflation jumped to 4 per cent in 2010 on the back of the recent rise in GST and increased fuel prices.

According to figures from Statistics New Zealand released this morning, the consumer price index (CPI) rose 2.3 per cent in the final three months of last year, after the government raised GST from 12.5 per cent to 15 per cent.

It was the largest quarterly increase in inflation since September 1989, when the government raised GST from 10 per cent to 12.5 per cent. Statistics New Zealand said the increase in GST contributed about 2 per cent to the CPI.

While the 4 per cent increase in annual inflation in 2010 was above the 1-3 per cent target set by the Reserve Bank, it was widely predicted by the market, and economists do not expect it to prompt an increase in the official cash rate later this month.

ANZ economist Mark Smith said that excluding the increase in GST and other ''one off'' government charges such as increase in fuel excise tax, underlying CPI inflation in 2010 would have been around 1.6 per cent, well within the Reserve Bank's inflation target.

ASB said the figure was slight below its predictions and suggested inflationary pressures ''are contained for now".

As well as the GST increase, inflation was boosted by higher transport costs, up 4.3 per cent in the final three months of the year, and 6.6 per cent in all of 2010, mainly driven by the rise in the pump price of petrol.

Of the 11 groups used to measure the CPI, only clothing and footwear, down 0.02 per cent, dropped during the quarter.

(Source The Press)