Inflation slumps as economy softens
Price falls indicate major discounting and a slower economy.
Hot Topic
Rich List
Falls in internet and phone charges, along with food prices, saw price inflation fall 0.3% in the December quarter.
The fall is a major surprise: the average market forecast was for an increase of 0.3%, not a decrease, and none of the economists who follow the New Zealand economy anticipated a negative number. Lower vegetable prices drove a 2.2% drop in food prices, while communication prices fell 3.5%, mostly due to lower internet and telephone charges.
Other falls were in household contents and services, where prices fell 1.5%, which reflects what appears to be major discounting by furniture, kitchenware and other appliance retailers.
The only major sector to show price increases in the quarter was a 1.4% rise in transport prices, mostly due to seasonal rises in airline prices. In a sign the residential housing market may be picking up again, house rentals rose 0.4% for the quarter and 2% for the year.
The December figure takes annual inflation to 1.8%.That is well within the Reserve Bank's inflation target band of 1-3% and is also below the central bank's anticipated inflation level.
Reserve Bank governor Alan Bollard is to review the official cash rate (OCR) next Thursday and is, after today's figures, even less likely to raise the rate from its present 2.5% level than previously.
Overall, the price falls indicate major discounting and a slower economy. The latest figures are not affected by the GST rise from October last year.
Rob Hosking
Thu, 19 Jan 2012
Thu, 19 Jan 2012
© All content copyright NBR. Do not reproduce in any form without permission, even if you have a paid subscription.
Inflation slumps as economy softens
18499