Petrol price fuels slide in inflation

INFLATION FALLS: New Zealand's annual inflation has remained below 2 per cent since the end of 2011.
Brendon O'Hagan/Bloomberg

INFLATION FALLS: New Zealand's annual inflation has remained below 2 per cent since the end of 2011.

Annual inflation has dropped to 0.8 per cent for the past year.

That is the smallest rise since mid-2013, with slumping  petrol costs holding down overall prices in the past few months, with more to come.

The December quarter inflation rate was down 0.2 per cent, Statistics New Zealand figures show, with cheaper petrol the biggest factor, as well as seasonally cheaper vegetable prices. They were offset by rising building costs in Auckland and Canterbury and higher international travel costs.

Bank economists had expected a quarterly rate of close to zero per cent and an annual rate of 0.8 per cent.

September quarter inflation was 0.3 per cent.

"Lower prices for petrol and vegetables were partly countered by higher prices for international travel and housing-related costs," Statistics New Zealand prices manager Chris Pike said.

Petrol prices were down 5.7 per cent and made the largest downward contribution in the quarter, but even excluding petrol, the consumer price index rose just 0.1 per cent.  

Seasonally lower prices for tomatoes, lettuce and cucumber influenced the fall in vegetable prices, which were down 14 per cent in the quarter, Statistics New Zealand said.

That fall was smaller than usual for the quarter after a mild winter. Vegetable prices were now slightly higher than a year ago.

Prices for newly built houses, excluding land, rose 1.7 per cent overall in the quarter.

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Auckland building costs were up 2.8 per cent and Canterbury up 1.7 per cent.

Housing rents rose just 0.3 per cent in the quarter, with Canterbury up 0.9 per cent.

International travel prices were higher, with international airfares up 7.3 per cent and package holidays up 5.3 per cent. These prices usually rise in the December quarter. 

Domestic airfares also rose, influenced by high demand leading up to the holiday period.

The dollar was trading at US76.7 cents shortly before the latest inflation figures came out and ​fell almost half a cent to about US76.3c on the weak inflation figures.

The bank economists' expectation for the annual rate to be about 0.8 per cent was just below the bottom of the Reserve Bank's target band for inflation, so the result was in line with expectations but was also the lowest rate of annual inflation since the middle of 2013.

Annual inflation has remained below 2 per cent since the end of 2011.

The Reserve Bank forecast annual inflation of 1 per cent in last month's Monetary Policy Statement.

Annnual inflation may fall further in the March quarter, given the continued drop in petrol prices.

Westpac economists recently suggested annual inflation could drop close to zero early this year.

Petrol prices have dropped almost 50c a litre since October to just under $1.73 a litre for 91 octane.

Petrol prices have been cut seven times this month.

World oil prices have crashed 60 per cent since last June.

Petrol accounts for 5 per cent of the New Zealand consumer's basket.

But New Zealand Institute of Economic Research economists said this week that the Reserve Bank was not likely to cut official interest rates despite low inflation, in part because of the hot housing market in Auckland. 

Many economists still expect interest rates to rise, but not till early next year.

Continued low inflation may see the central bank move away from the bias towards raising rates anytime soon, so keeping interest rates lower for longer.

 - Stuff

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