Video | Agriculture | Confidence | Economy | Energy | Employment | Finance | Media | Property | RBNZ | Science | SOEs | Tax | Technology | Telecoms | Tourism | Transport | Search

 


NZ inflation probably accelerated in first quarter

NZ inflation probably accelerated in first quarter, keeping OCR hikes on track

By Jonathan Underhill

April 14 (BusinessDesk) – New Zealand inflation probably accelerated in the first quarter, keeping on track expectations that the Reserve Bank will lift the official cash rate again next week to mitigate the effects of strong demand growth in coming years.

The consumers price index rose 0.5 percent in the first quarter, for an annual rate of 1.7 percent, according to a Reuters survey and the central bank’s latest estimate. That would mark the fastest annual rate since the fourth quarter of 2011.

Reserve Bank governor Graeme Wheeler raised the OCR to 2.75 percent last month, heralding the start of a tightening cycle with the first hike since 2010, and is expected to lift the rate to 3 percent next week. The rate of inflation and the bank’s policy response will depend on the behaviour of households and businesses in an economy where construction activity and migration flows are growing, and where loan restrictions have yet to conclusively show up in cooling house prices.

The Reserve Bank expects annual inflation to reach 2 percent this quarter, the mid-point of its target range, before creeping higher by the final three months of 2015. Some bank economists see a faster pace of inflation, given what is seen as a broad-based economic recovery.

The BNZ-BusinessNZ Performance of Composite Index, which combines the manufacturing and services indexes, jumped 5.1 points to 58.4 in March. Taken together with growth in building consents that suggests “upward pressure on inflation, given current limited spare capacity,” Bank of New Zealand economist Doug Steel said.

All of the acceleration in inflation is coming from the non-tradable sector of the economy, including housing related costs and a 10 percent hike in the tobacco excise. ASB chief economist Nick Tuffley expects non-tradable inflation of 1.3 percent in the first quarter, more than offsetting a 0.3 percent decline in tradable inflation in the face of a strong kiwi dollar.

The NZIER’s March 2014 Quarterly Survey of Business Opinion, released last week, showed that a net 37 percent of those polled expect average selling prices to rise in this quarter. That’s the highest since the second quarter of 2010, when it reached 40 percent, and is above the long-run average of 32 percent.

“Inflation turned a corner last year, and is now increasingly back in focus given signs of capacity pressures,” Tuffley said in a preview of the inflation data. He expects annual inflation to peak at 2.5 percent in 2015, above the Reserve Bank’s track, partly on expectations the New Zealand dollar will weaken in coming years, ending the mitigating influence from tradable deflation.

The trade-weighted index was recently at 80.45, well above the 78.4 level the central bank is expecting it to average in the first half of 2014, according to last month’s monetary policy statement. The Reserve Bank has the TWI reducing to 76.6 by the first quarter of 2016.

(BusinessDesk)

© Scoop Media

 
 
 
 
 
Business Headlines | Sci-Tech Headlines

 

Half Full: Dairy Payouts Steady, Cash Will Be Tight

Industry body DairyNZ is advising farmers to focus on strong cashflow management as they look ahead to the 2015-16 season following Fonterra's half-year results announcement today. More>>

ALSO:

First Union: Cotton On Plans To Use “Tea Break” Law

“The Prime Minister reassured New Zealanders that ‘post the passing of this law, will you all of a sudden find thousands of workers who are denied having a tea break? The answer is absolutely not’... Cotton On is proposing to remove tea and meal breaks for workers in its safety sensitive distribution centre. How long before other major chains try and follow suit?” More>>

ALSO:

Scoop Business: NZ-Korea FTA Signed Amid Spying, Lost Sovereignty Claims

A long-awaited free trade agreement between New Zealand and South Korea has been signed in Seoul by Prime Minister John Key and the Korean president, Park Geun-hye. More>>

ALSO:

PM Visit: NZ And Viet Nam Agree Ambitious Trade Target

New Zealand and Viet Nam have agreed an ambitious target of doubling two-way goods and service trade to around $2.2 billion by 2020, Prime Minister John Key has announced. More>>

ALSO:

Scoop Business: NZ Economy Grows 0.8% In Fourth Quarter

The New Zealand economy expanded in the fourth quarter as tourists drove growth in retailing and accommodation, and property sales increased demand for real estate services. More>>

ALSO:

Scoop Business: RBNZ’s Wheeler Keeps OCR On Hold, No Rate Hikes Ahead

The Reserve Bank has removed the prospect of future interest rate hikes from its forecast horizon as a strong kiwi dollar and cheap oil hold down inflation, and the central bank ponders whether to lower its assessment of where “neutral” interest rates should be. The kiwi dollar gained. More>>

ALSO:

Get More From Scoop

 
 
 
 
 
 
 
 
 
Business
Search Scoop  
 
 
Powered by Vodafone
NZ independent news