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NZ consumer prices rise at fastest annual pace in 2 1/2 years; kiwi gains

Thursday 26th January 2017

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New Zealand consumer prices rose at their fastest annual pace in two-and-a-half years in the final three months of 2016 as a recovery in global oil prices pushed up the cost of petrol, and the nation's bubbling property market continued to drive up house prices. The kiwi dollar rose above 73 US cents.

The consumers price index rose 0.4 percent in the three months ended Dec. 31 for an annual pace of 1.3 percent, Statistics New Zealand said. That was the fastest annual pace since June 2014 and the first time headline inflation has been within the Reserve Bank's target band of 1-to-3 percent in two years. Economists had been picking quarterly inflation of 0.2 percent for an annual pace of 1.2 percent. 

Petrol prices rose 4.1 percent in the quarter, reducing the annual decline to 0.5 percent. A slump in oil prices and resilient New Zealand dollar has kept a lid on headline CPI as households benefited from cheaper imports and lower transport costs, though the turnaround in energy costs heightened expectations for inflationary pressures to emerge.

"This is the first time in over two years that price increases for household purchases have been over 1 percent," Statistics NZ prices senior manager Jason Attewell said. "Household price inflation is up from a historical low of 0.1 percent for the December 2015 year." 

The New Zealand dollar rose to 73.03 US cents from 72.70 cents immediately before the data was released. The trade-weighted index rose to 79.68 from 79.34, while the kiwi rose to 96.31 Australian cents from 95.96 cents.

Other transport costs also rose in the quarter, with international air fares up 11 percent and domestic fares rising 9.7 percent on heightened demand ahead of the holiday period. On an annual basis, international air fares fell 5.7 percent and domestic prices were down 1 percent. 

Inflationary pressures from higher oil prices have coincided with the prospect of a more aggressive tightening cycle by the US Federal Reserve, which is having to balance the stimulatory policies of the new Donald Trump-led White House at a time of robust economic growth.  Cheap oil in recent years and the tepid inflation environment has made life difficult for New Zealand's Reserve Bank, which delayed cutting interest rates too aggressively for fear of stoking demand for an already hot property market. 

Today's data show prices for new housing rose 1.4 percent in the December quarter for an annual increase of 6.5 percent, the biggest yearly gain since September 2005. Real estate services, which includes commissions paid to agents, were up 4.7 percent in the quarter for a 12 percent annual gain. Rental prices were more sedate, with a quarterly increase of 0.5 percent for an annual gain of 2 percent. 

Local body rates rose 0.2 percent in the quarter for an annual increase of 3.2 percent, while rubbish collection and recycling prices were up 2.5 percent in the three-month period and 5.2 percent in the year. Electricity prices fell 0.2 percent in the quarter for a 2.3 percent annual gain. 

Tradables inflation, which includes goods and services that compete with international rivals, rose 0.3 percent in the quarter for an annual decline of 0.1 percent. Non-tradables inflation, which focuses on domestic inflation, rose 0.6 percent in the quarter for a 2.4 percent annual pace. 

RBNZ governor Graeme Wheeler is delivering his annual speech to the Canterbury Employers Chamber of Commerce today, however the bank has made it different to previous years in that it's off-the-record and won't touch on monetary policy because of the proximity to the Feb. 9 review.

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