Inflation increases in September quarter, but pace slows

By NZPA

Tuesday 15th October 2002

New Zealand's chief inflation gauge eased up in the September quarter, reducing pressure on the Reserve Bank to hike its interest rates.

The Consumer Price Index rose 0.5 percent, compared to a 1.0 percent increase in the June quarter, Statistics New Zealand said today.

On an annual basis, the CPI was 2.6 percent higher than a year earlier, but a slight decrease on June's 2.8 percent rise. The CPI has increased steadily for the past five quarters. This is expected to provide some relief to the RB's inflation target which has been running close to the top of its revised 1-3 percent target range.

Key contributors to the rise included higher prices for housing, household operations, alcohol and healthcare, but these were partly offset by lower prices for transportation.

Today's result was within market expectations -- forecasts hovered around 0.6 percent for the quarterly figure and annual inflation of 2.7 percent.

Over the quarter, prices rose in seven of the nine categories, with the biggest rises coming from tobacco/alcohol and personal/healthcare.

Housing prices jumped 0.9 percent, driven by increases in the purchase and construction of new dwellings, a 2.5 percent rise in local body rates, and rents.

Electricity price hikes were the main reason why household operation prices rose 0.8 percent. Power prices rose 1.5 percent, following a 1.9 percent rise in the previous quarter, and are now 6.1 percent higher than a year ago.

Tobacco and alcohol was 1.3 percent dearer, largely due to an increase in excise duty, while personal and healthcare costs increased 1.3 percent, as medical insurance and specialist services became more expensive.

Food prices remained relatively flat, rising 0.1 percent, with the biggest rise in fruit and vegetables and a fall in meat, fish and poultry prices.

Transportation prices were the most significant downward pressure on the CPI this quarter. Lower prices for used cars (down 2.7 percent), petrol (-2.4 percent) and international air travel (-1.9 percent) all helped push transportation costs down an overall 0.8 percent drop.

Among other figures released today, SNZ said food prices rose 0.2 percent in the September month.

Fruit and vegetable prices in September were the biggest contributor, up 1.9 percent following increases of 0.7 percent in August and 4.6 percent in July.

The most significant drop in prices came from milk prices (down 3.4 percent), and food prices rose 1.4 percent during the September year.

Westpac economist Nick Tuffley said today's CPI figures showed there was still a reasonable amount of underlying inflation pressure, only offset by fairly modest food and transportation prices.

"Looking ahead, we expect more of the same: inflation to sit around about or above 2.5 percent through the middle of next year.

"Whilst ordinarily that would have the Reserve Bank leaning towards tightening interest rates, the longer the global recovery continues to be delayed, the more downward pressure will be put on inflation."

In fact, there could even be an easing of interest rates in the absence of a concerted global recovery, Mr Tuffley said.

The Reserve Bank next reviews interest rates on November 20.

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