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


Sharp oil price drop should keep inflation stats flat

Sharp oil price drop should have kept December quarter inflation flat

By Jenny Ruth

Jan. 21 (BusinessDesk) - Inflation was likely flat to barely higher in the December quarter as oil prices fell nearly 40 percent, fruit and vegetable prices fell to seasonal lows and the New Zealand dollar strengthened modestly.

Economists are expecting a zero-to-0.1 percent increase in the Consumers Price Index for the three months ended December and an annual pace of 1.8-to-1.9 percent when Statistics New Zealand publishes its latest reading on Wednesday this week.

That's down from the Reserve Bank's 0.2 percent forecast for the quarter and 2 percent forecast for calendar 2018.

The head of wealth research at Craigs Investment Partners, Mark Lister, says the more interesting and relevant measure will be the non-tradeables measure, which tallies prices for things not internationally traded such as rents and other housing costs such as utilities.

“This will be much more reflective of how strong underlying inflationary pressures are in New Zealand,” Lister says. “It wouldn't be a surprise to see this come through a little stronger than some are expecting.”

ASB Bank economist Kim Mundy, who is forecasting a flat December quarter, says she expects non-tradeable inflation will have risen 0.5 percent, taking the annual increase to 2.6 percent, slightly above the Reserve Bank's 2.5 percent forecast.

But the Reserve Bank's own measure of core inflation, including the prices of internationally traded goods, is likely to remain at 1.7 percent for the year, where it has sat since June last year.

“As a result, the Reserve Bank is likely to remain comfortable leaving monetary policy settings unchanged and maintain the view that underlying inflation pressures will slowly build,” Mundy says.

She's expecting the central bank to keep its official cash rate at 1.75 percent through to August 2020.

However, Michael Gordon, an economist at Westpac, who's expecting a scant 0.1 percent increase for the quarterly CPI, has a different view.

“We think that domestically-generated inflation will be stronger than the Reserve Bank's forecast,” Gordon says.

“We think that the details will be 'hawkish' from the Reserve Bank's point of view. The sharp drop in fuel prices came as a surprise, but this is a temporary shock and is more easily looked through,” he says. “In contrast, we expect a 0.7 percent rise in the more persistent non-tradeables component compared to the Reserve Bank's forecast of a subdued 0.4 percent rise.”

The unexpectedly high September quarter out-turn highlighted the potential for the CPI to print differently to expectations.

While economists had been expecting a 0.4 percent increase for that quarter, the actual increase was 0.9 percent, taking the annual rate to 1.9 percent, just below the mid-point of the Reserve Bank's 1-to-3 percent target range.

However, the consensus in financial markets' is to price in core inflation, with a more than 50 percent chance of a cut in the OCR this year.


© Scoop Media

Business Headlines | Sci-Tech Headlines


Electricity Market: Power Panel Favours Scrapping Low-Fixed Charges

An independent panel reviewing electricity prices favours scrapping the government’s low-user fixed charge regime, banning the use of prompt-payment discounts, and requiring greater disclosure of the profit split between the retail and generation arms of the major power companies. More>>


Bottomless Oil And Zero Climate Cost: Greenpeace Not Big On PEPANZ Gas Ban Report

The NZIER report commissioned by oil industry body, PEPANZ, claims the oil and gas ban issued by the Government last April could cost the the New Zealand economy $28 billion by 2050... But Greenpeace says the figures in the report are based on false assumptions and alternative facts. More>>


Two Queensland Fruit Flies And A Different One In Otara: Devonport Fruit And Veg Lockdown

Work continues at pace on the biosecurity response following the discovery last week of one male Queensland fruit fly in a surveillance trap in the Auckland suburb of Devonport. More>>


Digital Services Tax: Government To Plan Tax On Web Operator Income

New Zealand is to consult on the design of changes to tax rules which currently allow multinational companies in the digital services field to do business here without paying income tax. More>>