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NZ 2Q CPI +0.6% on quarter, +1.7% on year

Tuesday 16th July 2019

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New Zealand’s consumers price index rose in the June quarter on higher prices for petrol, rent and ready-to-eat foods, but is unlikely to stave off pending interest rate cuts as the data was directly in line with expectations.

The CPI increased 0.6 percent in the June quarter bringing the annual rate of inflation to 1.7 percent, up from 1.5 percent pace in March, Stats NZ said.

The New Zealand dollar edged up to 67.23 US cents immediately after the release from 67.18 cents immediately prior. It was recently at 67.30 cents.

The result was as economists polled by Bloomberg and the central bank had expected.

"This print adds to the case that inflation pressures have stalled and more is needed from the RBNZ to get inflation back to 2 percent. It looks like 2Q will mark the peak in annual non-tradable inflation for some time. We’re expecting the RBNZ to cut the official cash rate in August and November," said ANZ economist Michael Callaghan. 

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 June quarter result marks the ninth consecutive quarter it has been below the mid-point.

Economists widely expect the central bank to cut the rate by 25 basis points to a record low 1.25 percent as early as August and many expect another 25-basis point cut before the end of the year.

Capital Economics Australia and New Zealand economist Ben Udy said while inflation strengthened in the second quarter "we don't think it will be enough to stop the RBNZ cutting rates at its next meeting in August. What’s more, we suspect that subdued economic activity and rising unemployment will keep underlying inflation below the RBNZ’s target until 2021."

ASB senior economist Mark Smith said he expects some volatility in annual CPI readings over the next few quarters but "our view is that downside risks to the inflation outlook have continued to grow, with the RBNZ looking increasingly unlikely to be able to comfortably meet its inflation and labour market objectives."

As a result, he believes the RBNZ will cut the OCR by 25 basis points in both August and November taking the OCR to a record low 1 percent by the end of the year.

The lift in inflation in the June quarter was largely due to higher petrol and rental costs.

The price of petrol rose 5.8 percent in the June quarter after a 7 percent fall in March. Stats NZ noted, however, that petrol prices rose slowly over the first part of the quarter but then fell.

“By the last week of June, the petrol pump price was 2 percent lower than the June quarter average,” said prices senior manager Paul Pascoe.

The price of petrol was up 3.3 percent on the year. Petrol prices make up 4.1 percent of the CPI.

Transport prices overall rose 0.6 percent on the quarter and 0.3 percent on the year with the lift in petrol prices offset by the prices for used cars, down 3.9 percent on the quarter and 3.2 percent on the year. Domestic air transport was also down 12.9 percent on the quarter and 3.5 percent on the year.

Housing and household utility prices rose 0.7 percent on the quarter and 2.8 percent on the year. Those prices were largely driven by higher rental prices, with actual rentals for housing up 1 percent in the June quarter and 2.5 percent on the year. The June-quarter lift is the largest since March 2008.  Rental prices make up 9.2 percent of the CPI.

Also within the housing sector, prices for the purchase of newly built homes lifted 0.7 percent in the quarter and were up 3.5 percent on the year.  New housing makes up 5.5 percent of the CPI.

Household energy prices, which include electricity, gas and solid fuels, rose 0.5 percent in the quarter and 1.6 percent on the year.

Food prices overall were up 0.6 percent in the quarter and 1.1 percent on the year. Within the food category, however, ready-to-eat foods lifted 1.6 percent on the quarter and 3.7 percent on the year.  

Alcoholic beverages and tobacco lifted 0.5 percent in the quarter and 3.5 percent on the year, with cigarettes and tobacco up 7.7 percent versus the same quarter a year earlier.

The tradables CPI, which includes goods and services that compete with international rivals, rose 0.9 percent on the quarter and were up 0.1 percent on the year.  

The latest increase was largely driven by higher petrol prices, Stats NZ said.

Non-tradables inflation, which focuses on domestic goods and services, rose a quarterly 0.3 percent for an annual increase of 2.8 percent.

Higher prices for rents, cigarettes and tobacco and the purchase of housing made the largest contributions.

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 1.9 percent to 2.1 percent for the year. “That indicates that underlying inflation is higher than the 1.7 percent overall increase in CPI,” Stats NZ said.


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