Budget adds to June 10 OCR hike expectation

The Treasury is forecasting the consumer price index will jumped to 5.9% 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 October 1. Real output is expected  to grow about 3% a year starting with a 3.2% gain in the 12 months through March 2011, having contracted 0.3% 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.

"The near-term impact of the Budget is more stimulatory than we had expected and will add to demand in aggregate," said Darren Gibbs, chief economist at Deutsche Bank. "All other things equal, this implies less scope for the RBNZ to maintain very easy monetary policy settings."