New Zealand Inflation Undershoots Expectations

• New Zealand Inflation Undershoots Expectations

Inflationary pressures in New Zealand undershot expectations in the June quarter, cementing the view that official interest rate settings from the Reserve Bank of New Zealand (RBNZ) are unlikely to change anytime soon.

According to Statistics New Zealand (StatsNZ), consumer price inflation (CPI) rose by 0.4%, coming in slightly below the median economist forecast for an increase of 0.5%.

The result left the change on a year earlier at 1.5%, up from 1.1% in the year to March but below the 1.6% level expected.

The year-on-year rate was in line with the RBNZ’s latest forecasts, and sits at the centre of its 1-3% annual CPI target.

Over the quarter, StatsNZ said largest boost to inflation came from higher prices for housing and household utilities which increased by 0.9%.

The headline figure was driven by an 0.8% lift in rents, 1.1% increase in the cost to build new dwellings and 1.7% jump electricity prices during the quarter.

Food prices also rose by 0.8%, mainly due to seasonal fluctuations in vegetable prices, as did petrol prices which increase by 3.2%.

Those gains were offset by price declines for communications and recreational items.

Like the quarterly increase, the largest upward contributor to CPI over the year came from housing and household utilities prices.

Costs for alcohol and tobacco items, as well as transport and miscellaneous goods and services, also added 0.2 percentage points or more to the headline annual increase in CPI, offsetting small declines in education, recreation and communications items.

Excluding the impact of petrol prices, StatsNZ said CPI increased by 1.1% over the year. Without the impact of food or housing-related price movements, CPI increased by 1.7% and 1% respectively over the year.

Despite the modest downside miss on the headline CPI figure, New Zealand financial markets are largely unmoved on the report given it does not alter the needle on the near-term outlook for official interest rate settings from the RBNZ.

In its June monetary policy statement, the RBNZ said while its overnight cash rate will remain at 1.75% “for now,” it added that it was “well positioned to manage change in either direction — up or down — as necessary”.