Food Price Index - Feb 2002

Data Flash (New Zealand)

Comment

A sooner than expected fall in fresh vegetable prices together with an unexpected decline in general grocery prices means that we have revised down our forecast of Q1 CPI inflation to 0.6% qoq.

As a result, annual CPI inflation weaker is expected to rise to either 2.6% or 2.7% in Q1, from 1.8% in Q4. Previously we had forecast annual inflation to rise to 2.8%.

Annual inflation is expected to remain at around 2.6%/2.7% for the first three quarters of this year, before beginning to head lower as weaker commodity prices and a forecast strengthening of the NZD lead to reduced inflation pressures in the tradeables goods sector.

While today's outcome has no implications for our view regarding the medium-term inflation outlook, the RBNZ will welcome the slightly lower peak in headline inflation that we now forecast. At the margin, a lower peak for headline inflation reduces the risk that inflation expectations drift upwards. It remains our view that the RBNZ will wait until the 15 May Monetary Policy Statement before delivering the first hike in a tightening cycle that is expected to take the OCR to 6.5% by mid 2003.

Key points

The food price index fell 0.5% mom in February (the market expectation was for a 0.1% rise). The annual rate of food price inflation declined to 4.5% from 5.6% in January.

General grocery prices fell 0.9% mom, more than reversing last month's above-trend increase. A greater number of items moved `on special' as opposed of `off special' in February - the converse of January's result.

A 6.3% mom fall in fresh vegetable prices, partially reversing last month's surge, drove a 1.7% mom decline in fruit and vegetable prices.

Lower lamb and poultry prices were the key drivers of a 0.2% mom decline in meat prices, which has been broadly stable over the past three months after the sharp rise recorded over the previous 18 months.

The restaurant and ready-to-eat food group posted a 0.4% mom rise.

Darren Gibbs, Senior Economist

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