Inflation lower than forecast at annual 0.8%, kiwi falls

BUSINESSDESK: 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% in the three months ended September 30, Statistics New Zealand says, slower than the 0.5% forecast by the central bank.

The annual rate slowed to 0.8%, below the 1% forecast by the Reserve Bank and outside its target band of between 1% and 3%. That is the first time it has dropped below the target band since 2002.

"Increases were countered by cheaper transport, telecommunications services and fresh milk," prices manager Chris Pike says.

Today's figures may fuel calls for the Reserve Bank to cut the official cash rate from its record-low 2.5% 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 kiwi down.

It 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%.

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

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

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

Dwelling insurance prices surged 17% in the quarter and are up 43% 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% in the period, while rental prices increased 0.6% and newly built housing prices advanced 1%.

Statistics NZ says 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% 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% in the quarter.

The level of discounting by retailers accelerated in the quarter, with 12% of prices collected at a lower price, down from 11% in the June period.

The heaviest discounting came from major household appliances, at 35%, followed by 29% for small electrical household appliances and the same reduction offered on electrical appliances for personal care. Audio-visual equipment was reduced by 28%.

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% in the second half of the year from a 2.6% expansion at the end of June.

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1 Comment & Question

Commenter icon key: Subscriber Verified

Hmmm, so is RBNZ obliged (mandated even?) to cut interest rates further at this point?

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