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NZ 1st-qtr inflation comes in below expectations; dollar falls

Wednesday 17th April 2019

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The consumers price index eked out a smaller gain than expected in the March quarter and may up the ante for an interest rate cut next month.

The CPI rose 0.1 percent in the March quarter bringing the annual rate of inflation to 1.5 percent, down from a 1.9 percent pace in December, Stats NZ said.

The New Zealand dollar dropped as low as 66.72 US cents from 67.77 cents immediately before the release. It was recently at 66.95 cents. 

Economists had predicted the CPI rose 0.3 percent in the three months ended March 31, for an annual increase of 1.7 percent, according to the median estimate from a poll of economists by Bloomberg. The Reserve Bank had tipped a 0.2 percent lift and an annual rise of 1.6 percent.

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

Inflation has remained stubbornly weak and the March quarter result marks the eighth consecutive quarter it has been below the mid-point. The bank surprised markets last month when it switched to an overt easing bias and said the most likely direction of the next move in the official cash rate is down from an already record-low 1.75 percent. 

Today’s data may add to the view that the central bank could cut the OCR as early as May.  

Inflation was low in the March quarter largely because of cheaper petrol and international airfares.

The price of petrol fell 7 percent from the December quarter. Stats NZ noted, however, that while prices were lower in January and February, by the last week of March the petrol pump price was 3.7 percent higher than the March quarter average. Since then, prices have continued to rise.

March-quarter petrol prices were up 0.7 percent from a year earlier.

Seasonal falls for international airfares also weighed on inflation. Prices were down 11.8 percent versus the December quarter. On the year they were down 1 percent.

The lift in the CPI for the March quarter was due to higher prices for cigarettes, Stats NZ said. An annual tobacco tax increase on Jan. 1 lifted cigarette and tobacco prices 9 percent in the quarter. On the year, they were up 7.7 percent   

“One cigarette now costs about $1.50 compared with $1.15 at the start of 2016. Ten years ago, cigarettes cost about 54 cents each.”

Fruit and vegetable prices were also up 5.4 percent on the quarter while alcoholic beverages lifted 2 percent. On the year, however, fruit and vegetable prices were down 2.4 percent while alcoholic beverages were up 2 percent.

Food prices overall were up 1.2 percent on the quarter and 1.3 percent on the year.

Within the housing sector, housing and household utilities prices lifted 0.6 percent on the quarter and 3 percent on the year. The lift in the housing and household utilities was the main driver behind the 1.5 percent annual inflation rate, Stats NZ said.

Actual rentals for housing rose 0.6 percent in the quarter and were 2.4 percent higher for the year. Household energy prices, which include electricity, gas and solid fuels, rose 1.2 percent on the quarter and 2.7 percent on the year.

Prices for the purchase of newly-built homes lifted 0.7 percent on the quarter and were up 3.9 percent on the year.

The tradables CPI, which includes goods and services that compete with international rivals, fell 1.3 percent in the quarter. It was down 0.4 percent on the year, with lower prices for telecommunication equipment, audio-visual equipment and the purchase of used cars the main factors. Higher prices for overseas accommodation and meat and poultry offset the decrease.

Non-tradables inflation, which focuses on domestic goods and services, rose a quarterly 1.1 percent for a 2.8 percent annual increase. Higher prices for cigarettes and tobacco were a key driver in both the quarterly and annual increase.

Stats NZ also 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 percent to 1.9 percent for the year. That “indicates that underlying inflation is higher than the 1.5 percent overall increase in the CPI.”


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