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Food Price Index - April 2002

Data Flash (New Zealand) Food Price Index - April 2002

Comment

The food price group is expected to make very little contribution to inflation in Q2. However, at this stage we anticipate a Q2 CPI outcome of 1.2% qoq. Around half of this increase stems from a rise in petrol prices (due both to an increase in excise taxes and world crude oil prices) and a seasonal rebound in seasonal airfares. Other notable contributions are expected from the housing group (+0.2pps, reflecting increased rentals and construction costs) and tobacco and alcohol (0.1pps, in large part due to higher beer prices).

If our forecast is correct, inflation will move close to the top of the RBNZ's 0-3% target range, as predicted by the RBNZ in its March forecasts (the lower than forecast inflation outcome in Q1 is offset by a higher than forecast outcome in Q2, largely reflecting volatility in fruit and vegetable prices and petrol prices).

It remains our view that the RBNZ will hike the Official Cash Rate by 25bps at this Wednesday's Monetary Policy Statement and OCR Review. We expect the Statement to contain a hawkish tone. Markets are pricing a 28% chance of a larger, 50bps, hike. The last Reuters poll showed 9 of 14 economists expect a 25bps hike while 5 expect a 50bps hike. The median chance of a 50bps hike was assessed at 37%.

Key points

The food price index rose 0.1% mom in April (the market expectation was for a 0.2% rise). The annual rate of food price inflation declined to 5.2% from 5.5% in January. The annual rate of food price inflation is expected to decline sharply over the next five months.

General grocery prices fell 0.4% mom. The 0.4% rise over the 3 months to April is the lowest rate of grocery price inflation recorded since December 2000. A greater number of items moved `on special' as opposed of `off special' in April - the converse of March's result. A 1.8% mom rise in fresh fruit and vegetable prices was a key driver over the overall rise. Meat prices fell 0.1% mom but the restaurant and ready-to-eat food group posted a 0.4% mom rise.

Darren Gibbs, Senior Economist

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