Visit the full NBR website
Home  

CPI falls 0.2% in December quarter, NZ dollar plunges

The consumer price index (CPI) fell unexpectedly by 0.2 percent in the last three months of last year, raising the likelihood of either a central bank interest rate cut or a longer period of current historic low interest rates.

The New Zealand dollar immediately fell on the announcement at 10.45am to 83.52 US cents from 84.15 cents just prior to the release.

Market expectations had been for a 0.1 percent increase. The annual inflation rate for calendar 2012 was 0.9 percent, up from 0.8 percent in the year to September.

That means inflation continues to fall just below the bottom end of the Reserve Bank of New Zealand's statutory target range of 1 to 3 percent annually over the medium term under its Policy Targets Agreement with the government and may increase pressure for a cut to the Official Cash Rate.

Current conventional wisdom is that the RBNZ will not cut the OCR again, but is unlikely to raise it from its current historic low point of 2.5 percent.

The result showed ongoing pressure in the less competitive, non-tradable parts of the economy, such as local body rates and electricity prices, where inflation rose by 0.3 percent in the quarter.

That was offset by a 0.7 percent fall in tradable sector prices, influenced most directly by falling food prices, with a 53 percent drop in tomato prices a key component.

"The CPI has fallen in four of the past five December quarters, the exception being 2010, after the GST increase," Statistics New Zealand's prices manager Chris Pike says.

Lower prices for food, down 1.8 percent, household contents and services, which fell 1.8 percent, and communications costs, down 2 percent in the quarter, all contributed to reduction.

The primary contributors to increased prices were housing and household utilities, where property maintenance services were up 2 percent after seasonal impacts on government subsidies for insulation and heating, rents up 0.3 percent, and the price of new houses, up 0.5 percent.

Seasonally higher international airfares, which rose 9.8 percent in the quarter, were a key factor in higher transport prices in the quarter.

Annually, the largest increases were in cigarettes and tobacco, up 13 percent after excise tax increases, a 2.4 percent upward movement in housing rentals, and a 5.2 percent increase in electricity prices.

Major offsets to this were a 5.7 percent annual drop in the cost of telecommunications services, a 17 percent fall in audio-visual equipment prices, and fresh milk, down 9.5 percent.

Statistics NZ also announced the formation of a periodically convened advisory group to consider changes to the composition of the primary indicator of price movements, which is used by the Reserve Bank in setting monetary policy and the Official Cash Rate.

Some market participants have been calling for a move from quarterly to monthly inflation statistics, which the government agency has so far resisted on grounds that it is already under-resourced for the range of statistical series it compiles.

"Frequency of the CPI compilation will definitely be one of the issues and topics," Mr Pike told today's media conference.

The nine-member group will be chaired by former Retirement Commissioner Diana Crossan.

(BusinessDesk)

Comments and questions

If the government-induced charges and taxes (cigarettes and liquor) and quasi-government charges (utilities and rates) were taken out of this calculation with only the "true market" statistics considered what would the result be?
Probably nearer to a full 1% fall for the quarter.

The true economy continues to contract and is "it is blowing smoke". The government and its close relatives are driving what inflation we have.

« Back to home page