Inflation up 0.4% in 1Q, led by tobacco, higher prescription charges

New Zealand consumer prices rose in line with expectations in the first three months of the year, led by more expensive cigarettes and tobacco from rising excise duty and higher costs for prescription medicines.

The consumers' price index increased 0.4 percent in the three months ended March 31, matching the consensus forecast among economists, for an annual pace of 0.9 percent, according to Statistics New Zealand.

That was led by a 12 percent lift in the price of cigarettes from a 10 percent hike in duty in the period and a 9.3 percent rise in subsidised prescription fees which came into effect at the start of the year.

"Higher cigarette and tobacco prices caused two-thirds of the March 2013 quarter increase in the CPI, prices manager Chris Pike says in a statement.

Stripping out the increase in tobacco prices, the CPI increased a quarterly 0.2 percent for an annual pace of 0.6 percent.

The annual pace was still short of the Reserve Bank of New Zealand's target band of between 1 percent and 3 percent, and was the third quarter where the annual pace has been below the range.

Last month, RBNZ chief economist John McDermott said cutting the benchmark rate from its record low 2.5 percent could bring inflation back to its target 2 percent mid-point faster, though that could come at the expense of stoking an already hot property market in Auckland.

Rental prices rose 0.7 percent in the March quarter, with the biggest increase in Canterbury, where housing stock faces a shortage in the wake of the earthquakes.

Tradable inflation, which includes goods and services facing international competition, shrank 0.5 percent for an annual decrease of 1.1 percent. Petrol prices rose 1.5 percent in the quarter and were up 0.2 percent annually.

Non-tradable inflation grew 1.1 percent in the quarter, its fastest quarterly pace since March last year, for an annual pace of 2.4 percent. If tobacco prices were unchanged in the quarter, non-tradable inflation would have increased 0.6 percent in the quarter.

Seasonally cheaper holiday packages helped offset rising prices, with international airfares falling 9.9 percent, and vegetable prices shrank 5.4 percent in the quarter.

Price increases were also kept in check by retailers discounting major appliances and audio-visual equipment, with 40 percent and 36 percent of stock sold at discounted prices, respectively.

AV equipment prices fell 4.4 percent in the March quarter, while major household appliances prices declined 0.9 percent. Prices for telecommunications equipment shrank 6.7 percent in the quarter for an annual decline of 22 percent, with 23 percent sold at a discount in the three-month period.

Food prices rose at a 0.7 percent pace in the quarter, with grocery food up 1.4 percent.

(BusinessDesk)