NZ 3Q inflation slows to 0.4% on cheaper petrol, telco services

Tuesday 25th October 2011

New Zealand’s consumer prices rose at almost half the expected pace in the third quarter as cheaper petrol costs and telecommunication services helped keep a lid on inflation.

The consumer price index rose 0.4 percent in the three months ended Sept. 30, taking annual inflation to 4.6 percent, according to Statistics New Zealand. That was well-short of the 0.7 percent quarterly figure predicted in a Reuters survey of 13 economists, and down from the 1 percent quarterly pace in the June period. Tradable inflation rose 0.1 percent in the September quarter, while non-tradable inflation rose 0.6 percent.

Annual inflation slowed from a 21-year high of 5.3 percent in the second quarter, and stripping out the impact of last year’s hike in goods and services tax to 15 percent, underlying inflation was 2.5 percent, within the Reserve Bank’s target band of between 1 percent and 3 percent.

The New Zealand dollar dropped to 80.39 US cents after the figures were released, from 80.74 cents immediately before.

The increase “reflects higher food prices and local authority rates countered by falls in transport and communication prices,” Statistics NZ prices manager Chris Pike said in a statement.

The release comes ahead of the Reserve Bank’s review of the official cash rate on Thursday, where Governor Alan Bollard is expected to keep the benchmark interest rate at a record-low 2.5 percent. Bollard was looking at tightening monetary policy amid signs of creeping inflation, though the global downturn has stayed his hand for the time being.

More benign inflation will help ease pressures on Bollard to hike rates prematurely, as delays in the rebuild of Christchurch keep prices in check.

Before the announcement, traders were betting Bollard will hike rates by 40 basis points over the coming 12 months, according to the Overnight Index Swap curve.

Transport prices fell 1 percent in the quarter, with a 3.3 percent decline in the price of petrol after a peak in the June quarter, and a 3.7 percent fall in international air fares. Still, on an annual basis, transport prices were 8.8 percent higher than a year ago, with petrol prices, second-hand vehicles, domestic air fares and diesel driving up prices.

Prices for telecommunication services fell 3.5 percent in the quarter amid cheaper international calling rates and increased broadband data caps removed pricing pressure, and prices are down 4.5 percent on the year.

Consumers have also enjoyed cheaper equipment, with the price of telecommunications gear falling 9.2 percent in the September quarter for an annual decline of about 25 percent, while audio-visual and computing equipment fell 4.8 percent in the quarter for an annual drop of almost 12 percent.

In the past couple of years, retailers have had to heavily discount products in a bid to stoke demand as households use record-low interest rates to repay debt rather than borrow to buy new consumer goods.

More expensive food underpinned the increase in the CPI, with food prices up 1.7 percent in the September quarter, led by an 18 percent rise in vegetables. On an annual basis, food prices rose 6.2 percent, accounting for about a quarter of the CPI’s increase.

Housing and utilities also added to the upward price pressures, with higher local authority rates and more expensive rentals in the quarter. Local authorities typically set their rates annually, with the impact usually felt in the September quarter.

(BusinessDesk)

BusinessDesk.co.nz

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