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NZ inflation weaker than expected on cheap food, retail goods; kiwi sinks

Thursday 25th January 2018

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New Zealand fourth-quarter inflation was lower than expected as higher fuel prices were offset by a slide in food prices and as some major retailers move away from short-term discounts and specials to consistently lower prices for retail goods. The kiwi dollar dropped.

The consumers price index rose 0.1 percent in the three months to Dec 31, while annual inflation was 1.6 percent, Statistics New Zealand said. Economists had expected the CPI to rise 0.4 percent in the three months ended Dec. 31, for an annual increase of 1.9 percent, according to the median in a poll of 13 economists surveyed by Bloomberg. That compares to the Reserve Bank's quarterly projection of 0.3 percent for an annual rise of 1.8 percent.

The lower number immediately weighed on the kiwi which fell to 73.40 US cents from 74.30 cents immediately before the release.

The Reserve Bank is mandated with keeping annual inflation between 1-and-3 percent over the medium term with a focus on the mid-point. However, inflation has remained stubbornly weak, only pushing up to a 2.2 percent annual pace briefly in the March quarter before dipping back to 1.7 percent in the June quarter and 1.9 percent in the September quarter.

Acting Reserve Bank governor Grant Spencer kept the official cash rate at 1.75 percent as widely expected at the November review and signalled no change on the immediate horizon given the lack of inflationary pressure. The central bank’s forecasts show it does not expect to lift rates until mid-2019 at the earliest and today’s data is unlikely to shake that view.

Petrol prices rose 6.1 percent in the quarter for an annual gain of 6.5 percent, underpinning the increase in the CPI. Transport group prices – which includes airfares – increased 3.2 percent in the quarter and 1.5 percent for the year.

“Petrol prices were up in the December quarter, following two quarters of falls,” Stats NZ prices senior manager Jason Attewell said in a statement. “Rising oil prices and a falling exchange rate pushed prices up sharply between July and November this year.” 

The average prices for 91 octane petrol hit $1.94 in the December quarter, up from $1.83 in the September quarter.

Housing-related prices continued to increase, up 0.6 percent in the quarter and 3 percent annually. Actual rentals for housing rose 0.5 percent in the quarter and were up 2.3 percent on the year. Property rates and related services were unchanged in the quarter for a 3.2 percent annual increase.

Household energy prices, which includes electricity, gas and solid fuels, rose a quarterly 0.1 percent and an annual 2 percent.

Food prices, meanwhile, fell 1.7 percent in the quarter, with fruit and vegetable prices tumbling 11 percent and meat, poultry and fish down 0.4 percent. Food prices were up 2.3 percent on the year.

Lower prices for retail goods also weighed on the CPI in the December quarter, Stats NZ said. “This partly reflects changing retail prices structures, as major retailers have moved away from using short-term discounts or specials to holding some prices consistently lower.”

Prices for household contents and services fell 1.5 percent in the quarter and 1.1 percent for the year. Within the category, glassware, tableware and household utensils prices fell 6.2 percent while prices for small electrical household appliances were down 4.4 percent. 

The tradables CPI, which includes goods and services that compete with international rivals, fell 0.3 percent in the quarter and was up 0.5 percent on the year. The annual increase was due to higher prices for petrol, dairy products and fruit, Stats NZ said. Non-tradables inflation, which focuses on domestic goods and services, rose a quarterly 0.5 percent for a 2.5 percent annual increase. Higher prices for cigarettes, tobacco, construction and rents made the major contributions.


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