NZ inflation may have slowed in first quarter on fees-free education policy

Monday 16th April 2018

New Zealand's annual pace of inflation probably slowed in the first three months of the year as the government's 'fees free' tertiary education policy comes into effect, removing price pressures in the sector.

Economists expect the consumers price index rose at an annual pace of 1.1 percent the three months ended March, slowing from a 1.6 percent pace in the December quarter, according to the median in a poll of 12 economists surveyed by Bloomberg. That compares to the Reserve Bank's quarterly projection of 0.6 percent for an annual rise of 1.1 percent. The economists predict CPI rose 0.5 percent in the March period, accelerating from a 0.1 percent quarterly pace in December.

The fall in education costs reflects the first step in Labour-NZ First’s free tertiary education policy, with the first year of study becoming free this year.

ANZ Bank New Zealand economists said the fees-free first-year tertiary education policy broadly offset any inflationary pressure coming from the usual annual increase in tobacco excise duty, with a 4 percent fall in the education group instead of its typical first quarter rise. The bank's economists forecast CPI rose 0.4 percent in the quarter.

"Outside of housing, the inflation pulse is expected to remain soft," said ANZ economist Miles Workman. ANZ expects a lift in purchasing of houses and rents. "March typically sees solid rent increases and anecdotes suggest this year is no exception," said Workman.

ASB Bank chief economist Nick Tuffley also said "housing costs remain a key driver of inflation, while policy changes suggest education costs will be a drag on inflation pressures over 1Q. With little evidence of core inflation lifting yet, we expect the RBNZ to leave the OCR (official cash rate) on hold until August 2019," said Tuffley. ASB expects inflation increased 0.5 percent quarter-on-quarter.

Bank of New Zealand's head of research Stephen Toplis said "the single biggest downward contribution is likely to come from the education group". He noted the other big negative contribution is likely to come from the transport group – not from fuel prices but passenger transport services. This is because international airline prices typically plummet in the March quarter each year reversing the usual surge in December.

He said BNZ had expected inflation to lift 0.3 percent on the quarter but today raised that forecast to 0.4 percent after government figures showed food prices jumped 1 percent in March. "We knew that poor weather was going to push fresh vegetable prices higher but we hadn’t expected the 10.6 percent increase that occurred in this subgroup. Accordingly, we have pushed our pick a notch higher though we note that this increase will be unwound in due course as growing conditions improve," he said.

(BusinessDesk)

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