Home Page A slight lift in inflation - NZResources.com
All articles are now Free to View!
25/1/2019 — General
A slight lift in inflation
By Simon Hartley

Annual inflation is up slightly to 1.9%, just shy of Reserve Bank expectations it would hit 2%; the mid-point of its 1%-3% target range.

Statistics New Zealand's consumer price index for the December quarter rose just 0.1%, taking annual inflation to 1.9%.

Toward the end of the quarter there was a sharp decline in petrol prices and also a plunge from high winter vegetable prices, which took pressure off the inflation rate coming in higher.

Economists had been expecting the consumer price index would increase zero to 0.1% in the three months, for an annual increase of 1.8% to 1.9%.

Westpac predicted the interest-driving official cash rate will continue to be held at the record low 1.75% until “late 2020,” while the ASB predicts it will be held until August 2020.

Westpac senior economist Michael Gordon said while inflation was tracking close to the Reserve Banks mid-point 2%, it was unlikely to break any higher in the near term. “Market expectations were for a flat quarterly out-turn,” he said.

The December quarterly inflation rate was typically on the low side due to seasonal factors, in particular a sharp drop in vegetable prices coming off their winter peaks.

Gordon said the recent drop in fuel prices would drag the headline inflation rate down during early-2019.

“We expect a gradual pick-up in domestic inflation pressures as the labour market tightens, but there will be some way to go before inflation tests the upper end of the (1%-3%) target range,” he said.

ASB economist Kim Mundy said the quarterly 0.1% lift in inflation was slightly more than she had expected and the soft headline result masked a lift in underlying inflation pressure during the quarter.

“However, given the recent slowing in economic growth we expect the Reserve Bank to remain patient,” and leave the official cash rate on hold until August next year. Ms Mundy said economic momentum had eased in the second half of 2018, which meant there was a risk some of the underlying inflation pressure could also slow in the coming quarters.

Annual inflation had ranged between 1.1% and 2.2% since December 2016, Statistics NZ said.

The central bank has consistently signalled no change in interest rates on the immediate horizon, given the lack of inflationary pressure, and today's data is unlikely to shake that view, BusinessDesk reported.

Petrol prices fell 0.6% in the quarter and were up 11.1% in the year.

“The price of petrol fell continually throughout the quarter, down from highs in October,” prices senior manager Paul Pascoe said.

“By the last week of December, the pump price was 8.3% below the December quarter average.”

Stats NZ said the overall 0.1% quarterly lift was led by seasonal rises in international airfares, but these were largely offset by seasonal falls in the prices for vegetables.

Household energy prices, which include electricity, gas and solid fuels, were unchanged on the quarter and were up 2.3% on the year. Prices for the purchase of newly-built homes lifted 0.9% on the quarter and were up 3.6% on the year.

*Simon Hartley is senior business reporter and assistant chief reporter for the Otago Daily Times.

Accessed via NZResources.com account: - no subscription / expired subscription