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NZ inflation missing in action in second quarter; kiwi dollar drops

Tuesday 18th July 2017

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New Zealand consumer prices were unchanged in the second quarter as weaker fuel prices offset rises in household basics like rent, food and electricity.  

The kiwi dollar dropped to 72.61 US cents after the figures were released from 73.26 cents immediately before.  It fell to 93.18 Australian cents from 93.88 cents and the trade-weighted index declined to 77.33 from 77.96.

The consumers price index was unchanged in the three months to June 30 while annual inflation was 1.7 percent, Statistics New Zealand said.

Economists had expected inflation of 0.2 percent in the second quarter, for an annual rate of 1.9 percent, according to the median in a poll of 15 economists surveyed by Bloomberg. The data also undershot the central bank’s forecasts for inflation of 0.3 percent in the second quarter for an annual rise of 2.1 percent. 

Second quarter inflation eased back from the first quarter when it was 1 percent and the annual rate was 2.2 percent.

The Reserve Bank is mandated with keeping annual inflation between 1 and 3 percent, with a focus on the mid-point. At the June rate review, Reserve Bank governor Graeme Wheeler kept the official cash rate at 1.75 percent and said the bank viewed a recent pickup in inflation as a temporary spike in the tradables sector.

"The increase in headline inflation in the March quarter was mainly due to higher tradables inflation, particularly petrol and food prices," Wheeler said in a statement at the time. "These effects are temporary and may lead to some variability in headline inflation."

Today’s data will likely add to that view and quell any expectations that the central bank might soon join others – like the Bank of Canada – that have lifted or are expected to lift rates soon.

The central bank’s forecasts show it does not expect rates to lift until September 2019 at the earliest.

Petrol prices fell 1.9 percent on the quarter and were up 4.5 percent on the year. The average price of 1 litre of 91 octane petrol was $1.86 in the June quarter, down from $1.90 in the March quarter but up from $1.78 in the June quarter a year earlier.

Overall the transport sector – which includes fuel and other services such as airfares – fell 1.3 percent on quarter and showed an annual rise of 1.2 percent. Domestic airfares were down 14.5 percent on the quarter while international air transport rose 3.7 percent.

The slide was offset by a 0.7 percent rise in food prices on the quarter, with vegetable prices jumping 19 percent, reflecting poor weather and growing conditions. Dairy prices were also up, with prices for butter reaching their highest price since the series began, Stats NZ said.

Housing-related prices continued to increase, up 0.8 percent on the quarter and 3.1 percent on the year.  Prices for new housing rose 1.8 percent in the June quarter for an annual increase of 6.4 percent. Rental prices rose 0.4 percent on the quarter and 2.1 percent on the year.

Local body rates eased 0.1 percent on the quarter and were up 3.2 percent on the year while refuse disposal and recycling fell 1.3 percent on the quarter but rose 4.5 percent on the year.  Household energy, which includes electricity, gas and solid fuels rose 1.5 percent on the quarter and 1.8 percent on the year.  

The tradables consumers price index, which includes goods and services that compete with international rivals, fell 0.2 percent in the quarter but rose 0.9 percent on the year. Non-tradables inflation, which focuses on domestic inflation, rose 0.2 percent on the quarter and was up 2.4 percent on the year.  Prices for the purchase of newly built houses, excluding land, made the most significant upwards contribution to the annual result.


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