Inflation rate falls back within RBNZ band ensuring interest rates stay low

Thursday 16th July 2009

New Zealand's annual rate of inflation dropped back close to the middle of the central bank's target band recording a 1.9% increase for the year to June 2009.

The consumer price index rose 0.6% in the second quarter, matching economists' forecasts, according to Statistics New Zealand. Nine of the 11 CPI groups recorded an increase.

The result boosts the likelihood that the Reserve Bank will hold the official cash rate steady at 2.5% when it is next reviewed on July 30. Pressure on house prices and tumbling petrol prices during the year helped the lower annual result.

For the second quarter in a row the biggest upwards pressure on consumer prices came from food, which rose 0.9%, while transport costs were up 0.6%, reflecting higher petrol prices in the quarter.

Two-thirds of the annual increase came from food and the food price index, also released this morning, showed a 2.8% increase for the year and an 8.4% jump between June last year and this year – the biggest monthly change in 20 years. This was driven by higher prices for fresh fruit and vegetables.

Non-tradeables inflation for the year was 3.3% driven by electricity tariffs, local government rates, and housing rentals. That was the smallest annual increase for seven years, but eclipsed tradeable sector inflation of just 0.2% for the year to June. The latest CPI release also recorded that the annual increase for purchase of new housing was lower than the increase in housing rentals, the first time since September 1999.

The New Zealand dollar rose to 64.82 US cents from 64.70 cents immediately before the announcement.

Businesswire.co.nz

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