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NZ June qtr inflation just below forecast; bolstered by housing costs

Tuesday 17th July 2018

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New Zealand second-quarter inflation was slightly lower than economists had expected but in line with central bank forecasts as housing-related prices continue to push higher.

The consumers price index rose 0.4 percent in the three months ended June 30, while annual inflation was 1.5 percent, Statistics New Zealand said. Economists had expected quarterly CPI to rise 0.5 percent for an annual increase of 1.6 percent, according to the median in a poll of 13 economists surveyed by Bloomberg. The Reserve Bank had tipped a quarterly rise of 0.4 percent and an annual increase of 1.5 percent.  

The central bank is mandated with keeping annual inflation between 1-and-3 percent over the medium term, focusing on the mid-point. However, inflation has remained stubbornly weak and the central bank has signalled the official cash rate is likely to remain at a record low 1.75 for some time to come given the lack of inflationary pressure. Today’s data is unlikely to shake that view. The kiwi dollar was virtually unchanged at 67.70 US cents. 

The biggest driver behind the quarterly lift was housing-related prices, up 0.9 percent in the quarter and 3.1 percent annually.

Actual rentals for housing rose 0.8 percent in the quarter and were 2.5 percent higher for the year. Property rates and related services were unchanged in the quarter for a 3.1 percent annual increase. Household energy prices, which includes electricity, gas and solid fuels, rose a quarterly 1.6 percent and an annual 2.8 percent.

“New Zealanders are paying more to keep their homes running,” Stats NZ prices senior manager Paul Pascoe said in a statement. “Rates, property maintenance services and home insurance are all higher than they were this time last year.” 

Dwelling insurance lifted 4 percent on the quarter and 18 percent on the year. The purchase of new housing lifted 3.9 percent on the year and 1.1 percent on the quarter.

Petrol prices rose 3.2 percent in the quarter for an annual gain 10.5 percent, also underpinning the lift in the CPI.

Transport group prices – which includes airfares – increased 0.2 percent in the quarter and 2 percent for the year. Higher petrol prices were countered by a 3.3 percent quarterly fall in used car prices, Stats NZ said.

“It was cheaper to buy a used car this quarter as dealerships looked to move some stock, but that was offset by higher running costs,” said Pascoe.

Food prices, meanwhile, lifted 0.8 percent in the quarter, with fruit and vegetable prices up 3.1 percent. Food prices rose 0.7 percent on the year.

On the other side of the ledger, home entertainment prices fell, with cheaper audio-visual equipment and lower prices for subscriber television, Stats NZ said. Audio visual equipment prices fell 15 percent on the quarter while subscriber TV prices were down 7.2 percent. Sky Network Television shares were unchanged at $2.60. 

The tradables CPI, which includes goods and services that compete with international rivals, rose 0.3 percent in the quarter and was up 0.1 percent on the year. Non-tradables inflation, which focuses on domestic goods and services, rose a quarterly 0.4 percent for a 2.5 percent annual increase.


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