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Quarter's 0.2 per cent inflation expected

NZN 17/04/2016 By Jonathan Underhill

New Zealand has recorded inflation that met the Reserve Bank's forecast in the first quarter, as an increase in tobacco tax, food and housing-related costs offset the impact of low fuel prices.

The consumers price index rose 0.2 per cent in the first quarter, for an annual increase of 0.4 per cent, Statistics New Zealand says.

The biggest contribution to inflation in the quarter and the year was the 10 per cent annual increase in the excise on tobacco, the last scheduled increase.

The New Zealand dollar gained to US69.08 cents, from US68.90c immediately before the data was released.

Traders now favour a cut to the official cash rate at the April 28 policy review, with odds of 53 per cent for a cut and 46.9 per cent unchanged based on the overnight index swap curve.

The bank has projected that annual inflation will return to its 1 per cent-to-3 per cent target band in the fourth quarter and reach the 2 per cent mid-point by March 2018.

Cigarettes and tobacco contributed 25 basis points to both the quarterly and annual CPI, while housing rentals and purchases of newly built homes both added 0.22 percentage points to annual inflation.

Petrol recorded the biggest decline in the quarter, at 7.7 per cent, contributing 0.34 percentage points.

Falling global crude oil prices have ensured tradables inflation has continued to decline and in the first quarter that measure dropped 0.9 per cent. Non-tradables inflation, which reflects those goods and services that don't face foreign competition and shows how domestic demand and supply conditions are affecting consumer prices, rose 1 per cent.

In the year, the tradables component fell 1.2 per cent and non-tradables rose 1.6 per cent.

The Reserve Bank next updates its forecasts in the monetary policy statement on June 9.

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