New Zealand consumer prices fell in the final three months of 2014 because of plunging oil prices.
Statistics New Zealand says the Consumers Price Index fell 0.2 percent in the three months to December, from a quarterly increase of 0.3 percent in the previous quarter. It is the first quarter of deflation since December 2012. Economists had been expecting inflation would be zero.
Inflation for the whole of 2014 was 0.8 percent which is below the Reserve Bank's target range of 1 percent - 3 percent.
Statistics New Zealand says petrol prices (down 5.7 percent) made the largest downward contribution. Excluding petrol, the CPI showed a 0.1 percent rise for the December quarter. The average price of a litre of 91 octane petrol in the December quarter was $2.00, compared with $2.12 in the previous quarter. By the end of the December quarter, petrol pump prices were 7 percent below the average price for the quarter, and as at 16 January were 17 percent below the average for the quarter.
Seasonally lower prices for tomatoes, lettuce, and cucumber influenced a 14 percent fall in vegetable prices in the December quarter. This is a smaller-than-usual December quarter fall, following a mild winter. Vegetable prices are now slightly higher than a year ago.
"Lower prices for petrol and vegetables were partly countered by higher prices for international travel and housing-related costs," prices manager Chris Pike said.
Prices for newly built houses excluding land rose 1.7 percent overall, with Auckland up 2.8 percent and Canterbury up 1.7 percent.
Housing rentals rose 0.3 percent overall, with Canterbury up 0.9 percent.
International travel prices were higher, with international air fares up 7.3 percent and package holidays up 5.3 percent. Statistics New Zealand says these prices usually rise in the December quarter. Domestic air fares also rose, influenced by high demand leading up to the holiday period.
The CPI increased 0.8 percent in the year to the December 2014 quarter. This is the smallest annual rise since the June 2013 quarter.
Housing and household utilities was the main contributor in the latest year, with newly built houses (up 5.4 percent), housing rentals (up 2.1 percent), and electricity (up 3.6 percent) all increasing in price.
Cigarette and tobacco prices increased 11.9 percent, influenced by an increase in excise duty in January 2014.
Petrol (down 4.0 percent) was the main downward contributor. Prices for audio-visual and computing equipment fell 14 percent, after adjusting for quality improvements.
What does lower inflation mean for interest rates?
Economists at Westpac say that”inflation straying from its target range and coming in lower than expected will make The Reserve Bank very nervous. The recent sharp decline in petrol prices is set to cause a 0.4percent decline in the March quarter CPI. That will take inflation to only a whisker above zero. Nil inflation will torpedo any lingering notion of the RBNZ hiking the OCR in the near term, and could even cause financial markets to begin assessing the risk of OCR cuts.
Westpac Chief Economist Dominick Stephens says “the RBNZ is likely to argue that this dip in inflation is transitory, being caused by a one-off decline in oil prices, and that booming construction activity and population growth still point to rising inflation in the medium term. This will have the RBNZ concluding that OCR cuts would be inappropriate.
However, the RBNZ's desire to signal an eventual increase in interest rates must surely have dwindled as inflation has fallen and the exchange rate has strengthened. Our current forecast is for no OCR hike until March 2016, but the risks are shaping up in the direction of an even later date for hikes.
The CPI measures the rate of price change of goods and services purchased by New Zealand households.
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source: newshub archive
