NZ inflation slows to 0.2% pace in third quarter, beating estimates, as transport prices fall

Tuesday 18th October 2016

New Zealand inflation slowed in the third quarter as a drop in transport-related prices such as vehicle relicensing fees offset higher vegetable and housing-related prices.

The consumers price index rose 0.2 percent in the three months ended Sept. 30 for an annual increase which was also 0.2 percent, Statistics New Zealand said. Economists had expected no change in the quarter for an annual 0.1 percent gain, while the Reserve Bank had forecast 0.1 percent and 0.2 percent respectively.

The New Zealand dollar gained, recently trading at 71.73 US cents, from 71.32 cents ahead of the data release.

The third-quarter data highlights the ongoing dilemma for the Reserve Bank because tradable prices fell 2.1 percent from the same period last year, a greater drop than the 1.5 percent decline in the second quarter, while non-tradables inflation accelerated to 2.1 percent from 1.8 percent. The central bank has little influence over tradables inflation, which has been wiped out by a kiwi dollar that continues to outpace the bank’s projections, and weak global inflation.

Annual inflation has now held below the central bank’s 1 percent-to-3 percent target range for eight consecutive quarters, although based on its August projections it sees the rate climbing to an annual 1 percent in the final three months of 2016. Traders have put odds of 84 percent on a quarter point cut to the official cash rate on Nov. 10, taking the bank’s benchmark rate to a record low 1.75 percent.

Today’s weak data “will do little to allay the RBNZ’s fears of persistently low inflation becoming embedded in price and wage-setting behaviour, especially if – as the RBNZ believes – households are becoming more backward-looking in forming expectations,” ANZ Bank New Zealand senior economist Philip Borkin said in a preview of the figures.

Housing and household utility prices provided the biggest contribution to the quarterly CPI, rising 1.1 percent, driven by a 2 percent gain in new housing prices, excluding land, and a 3 percent gain in local authority rates. Vegetable prices jumped 16 percent, or a 0.5 percent gain seasonally adjusted.

Transport prices were the biggest offset, falling 3 percent in the quarter. That was largely influenced by a decline in vehicle relicensing fees that kicked in on July 1 and drove a 28 percent decline in ‘other private transport service’ prices. Petrol prices declined 1.7 percent and new and used car prices also fell.

In the year prices of new housing excluding land rose 6.3 percent and housing rentals rose 2.1 percent. Local authority rates gained 3.4 percent and property maintenance services gained 3.1 percent.

Prices rose faster in Auckland, with newly built houses excluding land up 7.9 percent and rentals up 3.4 percent.

Transport prices declined, led by an 11 percent drop for petrol, a 28 percent decline in other private transport services and an 11 percent fall in international air transport. Package holiday prices fell 13 percent.

The trimmed mean, which measures underlying inflation, rose 0.4 percent in the quarter.

BusinessDesk.co.nz

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