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NZ consumer prices rise 0.3% in 3Q

Tuesday 16th October 2012

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New Zealand consumer prices rose at a slower-than-expected pace in the third quarter on falling transport, taking the annual pace of inflation below the Reserve Bank's target band.

The consumer price index rose 0.3 percent in the three months ended Sept. 30, according to Statistics New Zealand, slower than the 0.5 percent forecast by the central bank. The annual pace of inflation slowed to 0.8 percent, below the 1 percent forecast by the Reserve Bank and outside its target band of between 1 percent and 3 percent. That's the first time it's dropped below the target band since 2002.

"Increases were countered by cheaper transport, telecommunications services and fresh milk," prices manager Chris Pike said in a statement.

Today's figures may fuel calls for the Reserve Bank to cut the official cash rate from its record-low 2.5 percent in a bid to revive a slowing economic recovery and reduce the yield appeal of a strong currency. The New Zealand dollar has averaged 77.73 US cents this year, fuelling demands for the central bank to intervene in currency markets to bring the currency down.

The kiwi tumbled to 81.53 US cents from 81.80 cents immediately before the numbers were released.

Tradable inflation, which covers items open to foreign competition, was unchanged in the quarter, due to falling prices for second-hand cars, petrol and dairy products. On an annual basis, tradable inflation shrank 1.2 percent.

Non-tradable inflation rose 0.5 percent in the quarter at an annual pace of 2.3 percent, mainly due to higher local authority rates.

Transport prices fell 1.1 percent in the quarter, with the price of petrol down 1 percent, second-hand car prices down 2.8 percent and domestic air fares falling 7.8 percent. Fresh milk prices fell 3.8 percent in the quarter, while telecommunication services prices declined 1.8 percent.

Food prices rose 1.1 percent in the September quarter, led by more expensive produce, while grocery food prices fell 1.6 percent.

Dwelling insurance prices surged 17 percent in the quarter, and are up 43 percent on an annual basis as insurers pass on rising reinsurance costs in the wake of a series of earthquakes that levelled Christchurch, the country's second-biggest city.

Local authority rates rose 3.6 percent in the period, while rental prices increased 0.6 percent, and newly built housing prices advanced 1 percent.

Statistics New Zealand said the rates increase was one of several one-off events increasing prices in the quarter, along with the annual indexation of excise on alcohol duty, an 8.3 percent hike in road user charges, and price increases for new driver licence classes.

Stripping out those one-off increases, the CPI rose about 0.2 percent in the quarter.

The level of discounting by retailers accelerated in the quarter, with 12 percent of prices collected at a lower price, down from 11 percent in the June period. The heaviest discounting came from major household appliances, at 35 percent, followed by 29 percent for small electrical household appliances and the same reduction offered on electrical appliances for personal care. Audio-visual equipment was reduced by 28 percent.

Today's release comes a week after the New Zealand Institute of Economic Research's quarterly survey of business opinion showed local businesses were gloomier about the economy in a deteriorating trading environment. The Wellington-based consultancy sees the annual pace of growth slowing to 1.5 percent in the second half of the year from a 2.6 percent expansion at the end of June.

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