There are promising signs in new figures showing food prices are more than 12 percent higher than this time last year, says Prime Minister Chris Hipkins.
On Monday, Statistics NZ unveiled the latest food price index. The index showed a year-on-year increase of 12.1 percent and a monthly spike of 0.5 percent.
However, there were positive signs those prices had reached their highest point, Hipkins told AM on Tuesday.
He said most economists were "picking inflation in New Zealand has peaked and we're on the downward slope of that".
A cut on GST for fresh food for New Zealanders to help combat rising food prices has been ruled out.
However, the Government was confident food prices were settling, Hipkins said.
"Inflation is starting to come down," he told AM. "The latest food prices, for example, show in the last month, food prices have stabilised. Year-on-year they're still up but from the last month we've actually seen some positive signs that we might've hit the peak there."
The Government's impact on inflation has been highlighted in new Treasury research, which showed potential overspending at the height of the COVID-19 pandemic - to create more supply and demand - may have created the hangover effect currently affecting Kiwis.
But the Government would not apologise for necessary spending, Hipkins said.
"The biggest component of the Government spending in question was the wage subsidy which kept people at work during COVID-19 and it also meant that businesses didn't end up going to the walls."
He added people needed income security at the height of the COVID-19 pandemic.
However, AM host Ryan Bridge pointed to other Government spending it's faced scrutiny for including a 50 percent increase in communications staff and the tens of millions spent on consultants for Three Waters.
Hipkins dismissed that, saying they wouldn't have significantly impacted inflation.
"In order for [the] Government to reduce spending and have a meaningful impact on inflation, you're talking billions of dollars that the Government would need to reduce its expenditure by.
"I'm certainly not, as Prime Minister, willing to oversee that kind of austerity approach because the consequences of that for New Zealanders and New Zealand families would be significant."
When asked by Bridge about the $1 billion in Government spending cut since Hipkins took office two months ago, the Prime Minister argued "Wherever we see areas we can reprioritise spending, that's something I'll absolutely be focused on".
"We've got to make sure we're getting the best bang for buck from taxpayers' investment but in terms of the inflationary effects of that? Very small compared to other factors."
He pointed to recent data from the International Monetary Fund, predicting global inflation could fall to 4.9 percent by next year.
"Our imported levels of inflation are high," Hipkins said.
"The world rate of inflation… we are starting to see that trending down - that's going to have an impact on New Zealand."
Meanwhile, economists are picking annual inflation - to be unveiled later this week - likely rose at least 7 percent in the March quarter.
"There's certainly a lot more pain around the corner in the next 12-24 months," independent economist Cameron Bagrie said.
