Inflation up to 2.2%

After years of very low inflation the latest 12 month CPI inflation (year to end of March) has risen to 2.2%, with nearly half of that in the last quarter. CPI inflation of 2.2% in year to March beats expectations, with housing-related and transport prices on top of cigarette tax rise driving it

Prices rose at their fastest rate in five years during the last 12 months as housing-related costs such as new builds and rentals, transport costs and a cigarette tax hike helped push up the cost of living.

Consumers Price Index (CPI) figures released by Statistics NZ showed an annual increase of 2.2% in the year to March 2017. This was above market expectations of a 2.0% rise. CPI inflation in the March quarter was a whopping 1.0%, adjusted for seasonal effects.

This was significantly above expectations by the Reserve Bank in February, but most of the jump is due to two things, petrol, and cigarettes and tobacco which were bumped up by an increase in excise tax.

The cost of house building and rents were also a significant factor.

Indeed, there was a catch in Thursday’s figures. Excluding the impact of petrol, cigarettes and tobacco, the CPI only rose 1.5% during the year to March 2017.

Tradeable prices (imports and local goods and services in competition with imports) rose 1.6% over the year, its highest since September 2011. Non-tradeable prices (such as newly built houses and other goods and services that do not face foreign competition) rose 2.5%.

Inflation is still quite low and well within the range the Reserve Bank is supposed to try and keep it.

This might put pressure on the Official Cash Rate but economists predict that is unlikely to go up again until well into next year.

ASB economists said they still expected the next OCR increase to come in late 2018. “We expect the current lift in headline inflation will be temporary, as does the RBNZ, given there were several ‘one-offs’ in Q1,” they said. “Nonetheless, we expect annual inflation to hover around 1.5% and 2% over the next few years.

So it’s a bit unusual compared to what we’ve had over the last few years but it doesn’t seem anything to get very worried about.

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1 Comment

  1. patupaiarehe

     /  20th April 2017

    Nothing to worry about at all. Good news for me, working in the ‘private sector’. Being a ‘smoker’, I’m due for a pay increase, far above those who don’t indulge in the same ‘bad habit’…


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