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NZ 1Q inflation 0.5%, annual rate slows to 1.1% as cheaper education offsets higher tobacco prices

Thursday 19th April 2018

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New Zealand first-quarter inflation was in line with expectations as higher prices for cigarettes and tobacco were offset by cheaper tertiary education costs.


The consumers price index rose 0.5 percent in the three months to March 31, while annual inflation was 1.1 percent, Statistics New Zealand said. The result was exactly in line with the median of 12 economists surveyed by Bloomberg and compares to the Reserve Bank's quarterly projection of 0.6 percent and 1.1 percent.


The Reserve Bank is mandated with keeping annual inflation between 1-and-3 percent over the medium term with a focus on the mid-point. However, inflation has remained stubbornly weak and the central bank has signaled the official cash rate is likely to remain at a record low 1.75 percent “for a considerable period” given the lack of inflationary pressure. Today’s data is unlikely to shake that view. The kiwi dollar edged up to 73.34 US cents from 73.21 cents immediately before the figures were released.


The annual tobacco levy increase on Jan. 1 lifted quarterly inflation with prices for cigarettes and tobacco up 10.7 percent on the year and 10.5 percent on the quarter. “The average price for a packet of 25 cigarettes was $35.14 in March compared with $31.68 last December,” said prices senior manager Paul Pascoe. The average price was $13.46 in the March 2010 quarter.


Prices for tertiary education, meanwhile, fell 16 percent in the March quarter. The slide was the first fall in the series since 2003 and was due to the introduction of the government’s fee-free first-year policy.


Housing-related prices continued to increase and were the largest upwards contribution to the 1.1 percent CPI increase in the year ended in March. The housing and household utilities group lifted 0.6 percent on the quarter and 3.1 percent on the year. Actual rentals for housing rose 0.6 percent on the quarter and 2.1 percent on the year. Regionally, rents increased 2.5 percent and were up 4.2 percent in Wellington.


Construction prices, meanwhile, increased 4.7 percent on the year and 0.4 percent on the quarter.  According to Stats NZ, it was the smallest quarterly rise since the March 2011 quarter.


“Rising building prices in Auckland and Wellington have begun to slow. Both were up 0.3 percent in the latest quarter,” said Pascoe, adding it was the smallest rise in Auckland since December 2012.


Property rates and related services were unchanged in the quarter for a 3.0 percent annual increase.


Household energy prices, which includes electricity, gas and solid fuels, rose a quarterly 0.8 percent and an annual 2.7 percent.


Food prices, meanwhile, lifted 0.5 percent on the quarter and 0.6 percent on the year, the statistics agency said.


Stats NZ said that higher prices for accommodation and petrol also contribute to the quarterly CPI rise, but were offset by seasonal falls for international airfares.


The tradables CPI, which includes goods and services that compete with international rivals, fell 0.1 percent in the quarter and slipped 0.4 percent on the year, weighed down by lower prices for audio-visual equipment and international air transport. This was partly offset by higher prices for petrol. Non-tradables inflation, which focuses on domestic goods and services, rose a quarterly 0.9 percent for a 2.3 percent annual increase. The annual increase was driven by higher prices for cigarettes and tobacco, construction and rent.



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