NZ Food Price Index and CPI Outlook - January 2001
Data Flash (New Zealand)
The January food price index rose by 1.6% mom and was 4.0% higher than a year ago.
The volatile fruit and vegetable component made another significant contribution (up 5.5%), but the main surprise in the data was the 1.6% mom rise in the groceries component (largest increase in that group since1989).
The meat and restaurants sub-groups both recorded an increase of 0.4% mom. The Food Price Index makes up 18% of the CPI regimen.
Today's data reflect exchange rate pressure on food prices which developed late last year. However, there was general reluctance by retailers to pass increased costs through to consumers during the pre-Christmas period.
The catch-up followed in January and we expect grocery prices to record a further significant increase in February. That implies that food price inflation is likely to make a contribution of 0.4/0.5% to the March quarter CPI. Together with the recent rebound in petrol prices, the strong rise in food prices suggests that Q1 CPI inflation should now be expected to record a small positive number (our current estimate is 0.2%).
A negative figure was initially expected as a result of the change in state house rentals policy, which will subtract 0.6% from the March quarter CPI. That factor suggests that a modest outturn of +0.2% would imply considerable underlying inflation. We forecast annual CPI inflation of 3.5% for both years to March and to June, only modestly below the 4% peak of late last year.
Assuming a continued increase in the NZD over the remainder of this year and a renewed retreat in world oil prices, we forecast CPI inflation to fall to around 2% by the end of 2001. However, there are risks with respect to both assumptions, suggesting that it may take the RBNZ a considerable time to get inflation back to the mid-point of the target range. That outlook supports our view that there is little economic rationale for a RBNZ easing in the near term.
Ulf Schoefisch, Chief Economist, +64 9 351 1375