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Domestic inflation rises at fastest annual pace in eight years

Wednesday 16th October 2019

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Consumer prices rose in the September quarter as housing costs spurred the largest annual increase in non-tradeable, or domestic, inflation in eight years.

The consumers price index increased 0.7 percent in the September quarter, bringing the annual rate of inflation to 1.5 percent, down from 1.7 percent in June, Stats NZ said.

Economists had tipped consumer prices to lift 0.6 percent in the three-month period, for an annual increase of 1.4 percent, according to the median estimate from a poll by Bloomberg. The Reserve Bank of New Zealand was forecasting a 0.5 percent increase. 

The New Zealand dollar rose to 63.09 US cents at 10.50am from 62.83 cents immediately before the release. 

The central bank has a dual mandate to support maximum sustainable employment and keep annual inflation between 1-3 percent over the medium term, with a focus on the mid-point of 2 percent.

Inflation has been below 2 percent since the first quarter of 2017 when it briefly touched 2.2 percent. Prior to that, the last time it was above 2 percent was eight years ago.

Economists widely expect the central bank to cut the official cash rate by 25 basis points to a record 0.75 percent in November.  Most expect the rate to bottom out at 0.5 percent early next year.

Non-tradeable inflation, which focuses on domestic goods and services that don't compete with imports, rose a quarterly 1.1 percent for an annual increase of 3.2 percent. It was the biggest annual increase since September 2011 when the GST rate increased to 15 percent from 12.5 percent.

Tradeable inflation, which includes goods and services that compete with international rivals, rose 0.1 percent on the quarter and was down 0.7 percent on the year.

Housing and household utility prices rose 1.2 percent in the quarter and 3 percent annually. Actual rentals for housing were up 0.8 percent in the quarter and 2.9 percent in the year. Rent prices make up 9.2 percent of the index.

Property rates and related services lifted 4.9 percent in the quarter and were up 5 percent on the year.

“This year’s increase in local authority rates is slightly less than last year’s, but higher than the 4.4 percent annual average over the last five years and over double the rate of general inflation," said prices senior manager Paul Pascoe. Local authority rates and payments had lifted 5.1 percent in the year ended September 2018.

Also within the housing sector, prices for the purchase of newly built homes lifted 0.6 percent in the quarter and were up 2.8 percent in the year. The purchase of new housing makes up 5.5 percent of the index.

Household energy prices, which include electricity, gas and solid fuels, eased 0.2 percent in the quarter, but were up 1.5 percent in the year.

Food prices, meanwhile, were up 1.3 percent in the quarter and 1.8 percent in the year. Meat, poultry and fish prices lifted 3.4 percent in the quarter and 6.4 percent in the year. Meat prices have been moving higher globally on demand from China after its pork supplies were decimated by African swine fever.

On the other side of the ledger, falling fuel prices partly offset the September quarter inflation, with petrol prices down 0.8 percent in the quarter and 2.9 percent in the year.

“While we saw price rises at the pump late in the quarter, prices for July and August were lower than we saw throughout the June quarter,” said Pascoe.

Stats NZ noted the trimmed-mean measures, which exclude extreme price movements by progressively removing the influence of the largest increases and decreases, ranged from 1.7-1.9 percent for the year. “That indicates that underlying inflation is higher than the 1.5 percent overall increase in CPI,” it said.


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