NZ consumer prices rise at slowest annual pace since 1999 on cheap petrol; kiwi drops

Wednesday 20th January 2016

New Zealand consumer prices rose at their slowest annual pace since 1999 in the December quarter as cheap petrol pushed inflation below the Reserve Bank's expectations, and opens the door for more interest rate cuts this year. The New Zealand dollar dropped half a cent.

The consumer price index increased just 0.1 percent in 2015, its smallest reading since September 1999 when prices fell, according to Statistics New Zealand. That was short of the Reserve Bank's expectation for a 0.4 percent rise, and extended its run below the bank's target band of between 1 percent and 3 percent.

The CPI fell 0.5 percent in the three months ended Dec. 31, the biggest quarterly decline since December 2008, from an increase of 0.3 percent in September. Cheaper petrol drove both the quarterly and annual numbers, falling 7 percent in the final three months of 2015 for an annual drop of 8.1 percent.

The New Zealand dollar fell to 64.14 US cents, from 64.70 cents immediately before the release of the data.

Central bank governor Graeme Wheeler cut the official cash rate to 2.5 percent in December, and indicated rates would stay on hold on the expectation inflation would return to the target band on a weaker New Zealand dollar and as last year's petrol price declines washed through the data. The RBNZ had predicted the CPI would climb back within the band in the March quarter of this year, but global oil prices have slumped to 12-year lows with a worldwide glut set to continue.

Last week's food price index was softer than expected, prompting ASB Bank economists to downgrade their forecast for quarterly inflation to a 0.3 percent decline, and today's figures show cheap vegetables added to the downward pressure. Vegetable prices fell 14 percent in the December quarter, and were down 0.8 percent for the year. Cheaper milk, cheese and eggs also kept a lid on inflation, falling 3.7 percent in the quarter for an 8.7 percent drop in 2015.

International airfares rose 5.5 percent and prices for domestic flights were up 7.9 percent in the December quarter, offsetting the decline. On an annual basis, international fares fell 8.1 percent and domestic flights were down 1.7 percent.

Prices for new housing continued to rise, with new builds up 1.2 percent in the quarter for a 5 percent annual gain. That was more pronounced in Auckland where prices increased 1.5 percent in the December period and 7.2 percent in the year. The country's biggest city is going through a housing boom as it tries to invigorate supply that's lingered behind growing demand fuelled by the nation's record levels of inbound net migration.

Rents also increased, up 0.6 percent in the quarter for a 2.5 percent annual gain, while local body rates gained 0.4 percent in the three months through December for a 6.2 percent rise in 2015. Prices for real estate services rose 3.5 percent in the December quarter for a 9.3 percent annual increase.

Non-tradables inflation, which covers domestic goods and services that don't face international competition, rose 0.5 percent in the December quarter from a reading of zero in September. On an annual basis, non-tradable inflation rose 1.8 percent.

Tradables inflation shrank 1.8 percent in the quarter, turning around a 0.7 percent rise in the September period, for a 2.1 percent annual decline.

BusinessDesk.co.nz

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