Slower-than-forecast NZ inflation reinforces central bank’s neutral stance

The New Zealand dollar fell over half a U.S. cent on Tuesday after inflation came in lower than expected in the second quarter, quashing any thought the country’s central bank might raise interest rates for months to come. Transportation accounted for the largest quarterly drop at 1.3 percent.

The Reserve Bank is mandated with keeping annual inflation between 1 and 3 percent, with a focus on the mid-point.

That was shy of forecasts for an increase of 0.2 percent following the 1.0 percent gain in the first quarter.

The latest data is likely to reinforce the central bank’s view that it is in no rush to hike interest rates.

Consumer price inflation was flat in the second quarter, below the 0.2 per cent expected by analysts in a Reuters poll, and down sharply from the one per cent posted in the first quarter. “Offsetting these price rises were falls in domestic airfares and petrol prices, which fell on average by 4 cents a litre”.

Analysts in a median estimate called for a quarterly advance of 0.2% and an annual increase of 1.9%. The next Reserve Bank of New Zealand rate decision meeting is scheduled for August 10.

“Household basics like rent, food, and electricity all hit consumers’ pockets harder this quarter”, prices senior manager Jason Attewell said. Vegetables prices rose 19 percent for the year, with higher prices for lettuce, kumara, and broccoli. Housing rentals rose slightly (up 0.4 percent), held down by a 1.6 percent fall for Canterbury.

Housing-related prices continued to increase, up 0.8 percent on the quarter and 3.1 percent on the year.

Local body rates eased 0.1 percent in the quarter and were up 3.2 percent on the year while refuse disposal and recycling fell 1.3 percent in the quarter but rose 4.5 percent on the year. Prices for the purchase of newly built houses, excluding land, made the most significant upwards contribution to the annual result.