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NZ consumer price rise 0.3% in second quarter, annually slowest since 1999

Tuesday 17th July 2012

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New Zealand consumer prices less than expected in the second quarter for the slowest annual pace since December 1999, as cheaper telecommunication prices offset the rising cost of electricity and rentals.

The consumer price index increased 0.3 percent in the three months ended June 30, according to Statistics New Zealand, slower than the 0.5 percent pace forecast by a Reuters survey of economists, unchanged from the first quarter. The annual pace of inflation was 1 percent, slower than the 1.1 percent forecast, and at the bottom of the Reserve Bank's target band of 1 percent and 3 percent.

Today's figures mean the Reserve Bank won't have to worry about any inflationary pressures creeping in from the rebuild in Canterbury, allowing Governor Alan Bollard to keep the official cash rate lower for longer.

The kiwi dollar fell to 79.62 US cents after the numbers from 79.74 cents immediately before. Two-year interest rate swaps fell 0.9 basis points to 2.59 percent.

Earlier this week, traders were betting he will cut the official cash rate in the next 12 months, based on the Overnight Interest Swap curve, which shows 17 basis points of cuts priced in, according to Reuters data. They are seeing a chance that the central bank stands ready to act to stimulate growth should Europe's sovereign debt woes escalate and spread to the rest of the world.

"Subdued inflation will be the theme for a while longer," Westpac Banking economist Michael Gordon said in a note before the release. "Cost pressures generated by the Christchurch rebuild will become a more significant factor over time, although the weak starting point for inflation means that the RBNZ will be in no hurry to start pre-emptively leaning against these pressures."

The communication group showed the biggest quarterly drop in consumer prices, falling 2.5 percent. That was led by a 3.8 percent decline in the price of telecommunication equipment and a 2.5 percent fall in the price of services. The price of audio-visual and computing equipment fell 3.2 percent in the quarter.

"This reflected increased data caps for broadband plans and better-value cell phone services," Statistics New Zealand said in its report.

On an annual basis, communication group prices were down 9.5 percent, led by a 28 percent fall in the price of telecommunication equipment.

Higher electricity prices and rents pushed up the housing and household utilities group, which rose 1 percent in the quarter. Electricity prices rose 4.5 percent in the quarter, and were "influenced by widespread electricity tariff increases."

Petrol prices rose 0.4 percent the quarter to their highest recorded level. Still, prices fell late in May and continued to decline through June. Petrol prices rose at an annual 0.2 percent pace.

"If petrol prices remained at their end-of-June level throughout the September quarter, this would shave 0.4 of a percentage point off the September quarter CPI movement," Statistics New Zealand said.

Non-tradable inflation slowed to quarterly pace of 0.5 percent and was 2.4 percent on an annual basis.

Tradable inflation, which covers items that are open to foreign competition, accelerated to a quarterly pace of 0.1 percent after shrinking 0.4 percent in the first three months of the year. Annual tradable consumer prices shrank 1.1 percent from the same quarter a year earlier.

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