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

 

Budget Policy Statement: Spending Wins Over Tax Cuts; Big Ticket Items Get Boost

Income tax cuts are on hold as the government says “responding to the earthquakes and reducing debt are currently of higher priority”, although election year tax sweeteners remain possible. More>>

ALSO:

Fishy: Is Whitebaiting Sustainable?

The whitebait fry - considered a delicacy by many - are the juveniles of five species of galaxiid, four of which are considered threatened or declining. The SMC asked freshwater experts for their views on the sustainability of the whitebait fishery and whether we're doing enough to monitor the five species of galaxiid that make up whitebait. More>>

ALSO:

Crown Accounts: Smaller-Than-Expected Four-Month Deficit

The New Zealand government's accounts recorded a smaller-than-forecast deficit in the first four months of the fiscal year on a higher-than-expected inflow of corporate and goods and services tax. More>>

ALSO:

On For Christmas: KiwiRail Ferries Back In Full Operation After Quake

KiwiRail’s Interislander ferries are back in full operation for the first time since the Kaikoura earthquake, with the railspan that allows rail wagons to be loaded on the Aratere now restored. More>>

ALSO:

Comerce Commission Investigation: Prosecutions Over Steel Mesh Labelling

Steel & Tube Holdings, along with two other companies, will be prosecuted by the Commerce Commission following the regulator's investigation into seismic steel mesh, while Fletcher Building's steel division has been given a warning. More>>

ALSO:

Wine: 20% Of Marlborough Storage Tanks Damaged By Quake

An estimated 20 percent of wine storage tanks in the Marlborough region, the country’s largest wine producing area, have been damaged by the impact of the recent Kaikoura earthquake. More>>

ALSO:

ACC: Levy Recommendations For 2017 – 2019 Period

• For car owners, a 13% reduction in the average Motor Vehicle levy • For businesses, a 10% reduction in the average Work levy, and changes to workplace safety incentive products • For employees, due to an increase in claims volumes and costs, a 3% increase in the Earners’ levy. More>>

Get More From Scoop

 
 
 
 
 
 
 
 
Business
Search Scoop  
 
 
Powered by Vodafone
NZ independent news