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Inflation tipped to hit mid-point of range

NZN 18/04/2017 Rebecca Howard

Higher food and fuel prices are expected to propel annual inflation to 2 per cent in the first quarter, marking the first time it will hit the mid-point of the central bank's target range in five-and-a-half years.

Economists expect inflation was 0.8 per cent in the first three months of the year, for an annual rate of 2 per cent, according to the median in a BusinessDesk poll.

That would exceed the central bank's projection of inflation of 0.3 per cent in the first quarter for an annual rise of 1.5 per cent. The data is due Thursday.

"The RBNZ could be marking off a key milestone on Thursday" with a return to the mid-point, said Kim Mundy, an economist at ASB Bank, in a note.

"Hitting around that figure marks a return to a more 'normal' pace. Just 6 months earlier inflation was a mere 0.4 per cent."

The central bank is mandated with keeping annual inflation between 1 and 3 per cent, with a focus on the mid-point.

Three months earlier, the consumers price index reached 0.4 per cent, a fourth-quarter pace that helped lift annual inflation to 1.3 per cent, the first time the annual rate had been above 1 per cent since the September 2014 quarter.

While inflation is expected to be significantly higher than the RBNZ's forecasts, economists say it may be temporary and therefore not have much impact on monetary policy.

The central bank kept interest rates at a record low 1.75 per cent in March and reiterated that they are expected to stay at that level "for a considerable period".

Some of the factors contributing to the rise in the first quarter are "one-hit wonders rather than inflation pressures that will be sustained," said ASB Bank in a note.

Fuel prices rose an estimated 6 per cent over the quarter and food prices rose more than normal and "a further 10 per cent tobacco tax excise increase rounded out the bumps," it said.

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