Inflation down but a rise expected

By Phil Boeyen, ShareChat Business News Editor

Thursday 17th January 2002

New Zealand's inflation has fallen below 2% although it is expected to rise again in the current quarter.

Statistics New Zealand says the consumers price index rose by 0.6% in the December 2001 quarter following a similar rise in the three months ended September.

The December increase reflects higher prices for food, housing and health care, and was partly offset by lower prices for petrol.

Food prices rose 1.5% in the quarter, driven by price rises in grocery foods and meat, fish and poultry. The most significant individual item contribution to the grocery food price increase came from a 4.8% increase in milk prices but this was tempered by a 3.5% fall in fruit and vegetable prices.

The most significant downward contribution came from a fall of 0.6% in transportation prices, mainly due to a 9.1% drop in petrol prices.

On an annual basis the latest CPI figures put the annual inflation rate at 1.8%, down from 2.4% at the end of the previous quarter.

HSBC says the 0.6% increase in the CPI was in line with its forecast but a little above market expectations, which had been for a 0.5% rise.

Deutsche Bank says the result was in line with the Reserve Bank's preliminary published in the November monetary policy statement and is unlikely to have any material influence on next Wednesday's review of the official cash rate.

"We expect the bank to leave the OCR unchanged at 4.75%, based on more positive global news and the recent run of domestic data, which included a renewed rise in business and consumer confidence, reasonable Christmas trading for retailers, continued strong migration inflows, as well as a buoyant housing market."

Deutsche Bank believes measures of underlying inflation are still showing uncomfortably high figures and it expects the Reserve Bank to begin tightening up on rates in August.

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