Excluding the one-off impact from the rise in GST, annual inflation stayed around 2 per cent in calendar 2010 and is forecast to remain relatively muted for the foreseeable future, Finance Minister Bill English says.

“Price increases put pressure on families, particularly after the difficult economic times we’ve had in the past two or three years,” he says. “So it’s important that we do all we can to take pressure off prices and interest rates.

“Other than the one-off impact of the GST rise and recent petrol price increases – which reflect higher oil prices on world markets – general underlying inflation in the December quarter remained relatively modest.

“In terms of the GST rise, New Zealanders on welfare benefits, Working for Families and New Zealand Superannuation were immediately compensated for this on 1 October.

“Taxpayers across all income bands also received personal tax cuts, which left someone on the average wage about $15 a week better off from the income tax/GST switch.”

Statistics New Zealand today announced that consumer inflation increased 4.0 per cent in the year to December – including a one-off impact of about 2 per cent from the increase in GST in the December quarter.

“As Parliament’s Finance and Expenditure Committee noted last month, the Reserve Bank expects inflation to remain comfortably within its 1-3 per cent target band in the next few years,” Mr English says.

“It’s encouraging that the central bank is not seeing any significant changes in price or wage setting behaviour as a result of the rise in GST, given the offsetting reduction in personal income taxes.

“That’s a far better position than we inherited in 2008, when inflation was running at more than 5 per cent and we were deep in recession.”

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