NZ 2Q inflation speeds to 1% pace on fuel, food, annual rate

NZ 2Q inflation speeds to 1% pace on fuel, food, annual rate at 21-year high 5.3%

July 18 (BusinessDesk) – New Zealand inflation accelerated more than expected in the second quarter, on prices of fuel, food and power, increasing the prospects that the central bank will raise interest rates later this year to cool a resurgent economy.

The consumer price index rose 1% in the three months ended June 30, pushing the annual rate to a 21-year high 5.3%, according to Statistics New Zealand. That outpaced the 0.8% quarterly and 5.1% annual rate forecast by economists in a Reuters survey and is faster than the Reserve Bank had been expecting.

The CPI figures come after gross domestic product grew 0.8% in the first quarter, twice the forecast pace, sending the New Zealand dollar to a new post-float high. While annual inflation was expected to peak out in the latest quarter at around 5%, given the impact of one-off adjustments such as the hike in goods and services tax, today’s figures suggest price pressure is becoming more widespread.

“The underlying picture is that the recessionary lull in inflation pressures is now well past,” said Dominick Stephens, chief economist at Westpac Banking Corp., before the numbers were released. “We are concerned that these kinds of outcomes will steadily erode the RBNZ’s wiggle room on inflation.”

Stephens predicts annual inflation will stay above 3% through this year, even after the impact of the GST hike drops out, which is stronger than the RBNZ’s 2.5% forecast.

The trimmed mean measures for quarterly inflation ranged from 0.8% to 0.9%, suggesting underlying inflation is accelerating. Some 70% of the latest increase came from petrol, food, air travel and electricity.

The central bank is expected to raise the official cash rate by at least 50 basis points in the next 12 months, according to the Overnight Index Swap curve. By contrast the heat in Australia’s economy, the biggest market for New Zealand goods, is coming out, and Westpac said on Friday there is a prospect that the Reserve Bank of Australia will actually cut its key rate this year.

That would narrow the gap with the RBNZ’s OCR at 2.5% currently and may help lift the kiwi dollar against the Australian dollar.

In the latest quarter, transport costs rose 2.7%, making the biggest single contribution to CPI, with petrol prices rising 4%, international air fares gaining 6.8% and domestic fares up 8%.

Food prices rose 1.1%, paced by a 1.5% gain for groceries and a 6.7% increase for vegetables. Prices of tomatoes soared 64%, largely reflecting supply disruptions from the Queensland floods, and lettuces gained 30%.

Housing and household utilities gained 0.9%, led by a 2.7% gain in electricity, new housing costs rising 0.9% and rental housing gaining 0.5%. Prices of new housing were influenced by increases in Christchurch and the rest of the South Island, the government statistician said.

Alcoholic beverages and tobacco declined 0.6% and communications declined 1.2%.

In the year, increases were driven by an 11% rise in transport costs, given a 20% gain in petrol, while food rose 7% and housing and utilities rising 4.4%.

The annual CPI increase was the largest since a 7.3% annual gain in the second quarter of 1990, which also reflected a hike to GST to 12.5% from 10%. GST is now 15%.

(BusinessDesk)

© Scoop Media