NZ inflation probably accelerated in Q2 on fuel, food

Friday 11th July 2008

New Zealand inflation probably accelerated in the second quarter on rising costs for fuel and food, which may curb the extent of any central bank easing in interest rates.

The Consumers Price Index rose 1.4% in the three months ended June 30, for an annual pace of 3.8%, according to surveys. Economists including Westpac Banking Corp�s Brendan O�Donovan predict CPI was even higher and may stoke further price and wage increases.

�Inflation expectations are already elevated and likely to press higher as actual inflation prints markedly above the RBNZ�s target band,� O�Donovan, who forecast inflation was 1.6% last quarter, said in a report. That may �prevent an aggressive monetary policy easing despite a clear, rather sharp, softening in economic growth.�

Economists predict the central bank will cut the official cash rate from a record 8.25% as soon as possible this month, amid signs the economy is in recession. Still, more companies reported price increases in the past three months, according to the Quarterly Survey of Business Opinion, and annual CPI was above the central bank�s 1% to 3% target range in both the December and March quarters.

Statistics New Zealand is scheduled to release second-quarter CPI on July 15, a day after the publication of retail sales figures for May. The central bank expects inflation was 1.4% in the second quarter for an annual pace of 3.8%. It predicts inflation will peak at 4.7% in the third quarter.

Retailers� Pain

Consumer confidence plummeted to the lowest since the 1991 recession, a survey last month showed, as rising household costs and a cooling jobs market prompted people to cut back on spending.

Hallenstein Glasson Holdings, the clothing chain with stores in New Zealand and Australia, yesterday became the third listed retailer to cut its profit forecast in the past two weeks.

Economists at ANZ Bank say deflation among retailers may help trim CPI because of a sharp slowdown in sales and excess stock levels in stores, which led to �aggressive discounting� last quarter.

�Judging by some of the advertisements by major retailers, we could see an even bigger price decline in retail related goods in the June quarter than we saw in the March quarter,� ANZ Bank said.

By Jonathan Underhill

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