Consumers Price Index shows slow inflation


It doesn't come as a surprise to anyone that house prices are on the rise but people might be pleased to know domestic airfares are falling, and fast.

The Consumers Price Index (CPI) has risen 0.4 percent in the June 2016 quarter according to new data from Statistics New Zealand.

"Higher petrol and housing-related prices were countered by lower prices for meat and domestic air fares," consumer prices manager Matt Haigh said.

Petrol prices are on their way back up, being largest upward contributor with a 5.3 percent increase in the quarter. This follows two reasonable drops of 7.7 percent and 7 percent in the March 2016 and December 2015 quarters respectively.

What this means for you is that the price of petrol has gone up from $1.69 per litre in the March quarter to $1.78 in the June quarter.

Excluding petrol, the CPI rose 0.2 percent in the June 2016 quarter.

Rising house prices are also being reflected in the CPI with housing and household utilities prices rose 1 percent. The majority of the increase was driven by higher prices for newly built houses, excluding land (up 2.1 percent), electricity (up 1.8 percent), and rentals for housing (up 0.6 percent).

Looking at the regions, Auckland was the front-runner for purchases of new houses up 2.9 percent, followed by 1.4 percent in Canterbury and 0.3 percent increase in Wellington.

Meat prices made the largest downward contribution for the latest quarter, down 2.7 percent. A 9.9 percent drop in the price of domestic airfares also pulled the index down. Domestic airfares have fallen 14 percent since the December 2015 quarter.

The CPI is one of the key indicators of inflation and this quarter's 0.4 percent increase means annual inflation also remained at 0.4 percent for the year to June 30.

ASB chief economist Nick Tuffley says the lower-than-expected result will drive the Reserve Bank (RBNZ) into action.

"We continue to think that the RBNZ will cut the OCR [official cash rate] in August, and we still have a further cut to 1.75 percent pencilled in."

However Mr Tuffley believes Thursday's economic update from the Bank, will have a larger influence on the likelihood of an August OCR cut.

"As expected, it was higher petrol prices and construction costs that drove inflation over Q2. The lift in construction prices is something we had been expecting for some time, yet the pressures had not been that evident in preceding quarters. Construction costs rose 2.1 percent, and rental prices in Auckland also lifted."

He says without taking the two housing impacts into consideration, inflation is weak.

"Household contents fell 1 percent in Q2 after rising 1.7 percent in Q1. The majority of this fall came from furniture, furnishings and floor coverings which fell 2.4 percent over the quarter."

He believes sales are also having an effect.

"Reasonably high levels of discounting appear to continue to be weighing on prices.  Transport prices were weaker than expected on lower prices for rental cars."