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.

Inflation up, no one cares

The latest Consumer Price Index is out today for the December quarter and it shows that inflation is on the rise – and no one really seems to care about it.

The quarterly rise was 0.3%, which gives an annual rate of 1.3%, the first time it has been in the target range for two years. This is still quite low.

The consumers price index (CPI) inflation rate was 1.3 percent in the year to the December 2016 quarter, Statistics New Zealand said today.

“This is the first time in over two years that price increases for household purchases have been over 1 percent”, prices senior manager Jason Attewell said. “Household price inflation is up from a historical low of 0.1 percent for the December 2015 year”.

Prices for tradable goods and services were 0.1 percent lower in the year to December 2016. Despite higher quarterly prices, petrol and international airfares were cheaper than a year ago. Non-tradable goods and services showed a 2.4 percent increase, influenced by housing-related price increases.

Housing-related prices continued to increase, up 3.3 percent in the December 2016 year. Prices increased for newly built houses excluding land (up 6.5 percent) and for housing rentals (up 2.0 percent).

“Housing-related prices in Auckland increased more than the national average, with new houses up 8.2 percent and rents up 3.2 percent from a year earlier,” Mr Attewell said.


Quarterly prices rise 0.4 percent

The CPI rose 0.4 percent in the December 2016 quarter, following a 0.3 percent rise in the September 2016 quarter. After adjusting for seasonal effects, the CPI was up 0.7 percent.

“Higher prices for petrol, air fares, and new house builds were partly offset by lower prices for food and furniture,” Mr Attewell said.

Petrol prices made the largest upward contribution for the quarter, up 4.1 percent. The average price of a litre of 91 octane petrol in the December 2016 quarter was $1.82, up from $1.75 in the September quarter.

Food prices fell 1.2 percent in the latest quarter, with seasonally lower fruit and vegetable prices being partly offset by higher prices for dairy products.

Negligible inflation

The latest Consumer Price Index shows inflation at a negligible 0.2% for both the past quarter and the past year (to September).

This remains outside the Reserve Bank target range of 1-3%, as it has been for the past two years.

With mortgage interest rates at record lows many people will be benefiting from price stability, except for those wanting to enter the inflated housing market or having their rents pushed up.

Some see problems with ongoing low inflation rates but it’s a lot better than the days of rampant inflation.

Finance Minister on the inflation rate

Inflation remains low at 0.4% (annual to 2016 Q1). Not surprisingly Finance Minister Bill English talks up the benefits of low inflation and the economy in general.

From ODT: 0.4% inflation in line with Reserve Bank forecasts

Mr English said New Zealand was in the unusual situation of having solid economic growth, more jobs and rising wages at the same time as very low interest rates and inflation.

‘‘This is helping New Zealand families get ahead. Households with mortgages have the double benefit of low cost-of-living rises and lower mortgage servicing costs, which will be particularly welcome in regions with increasing house prices.”

Since the start of 2012, the average annual wage had increased by more than 10% to $57,800, considerably faster than inflation which had been only 3.1%, he said.

Part of that wage increase is likely to be catching up from suppressed wages during the Global Financial Crisis.

An additional 175,000 jobs have been created over the past three years, with a further 173,000 expected by 2020.

‘‘Overall, New Zealand is doing well and New Zealanders are reaping the benefit of a growing economy,” Mr English said.

Many New Zealanders will be benefiting,and National will be benefiting with no driving need for a change of Government.

But many are still struggling, like a large number who are still unemployed (133,000 at the end of 2015), many more who can’t get as many work hours as they want, and those being hit by housing costs and rentals in Auckland and in a growing number of regions.

A high inflow of immigrants continue so additional jobs are essential, but housing is still failing to keep up forcing up land prices.

See: Opposition finance spokesperson on inflation

Annual inflation 0.4%

New Zealand continues to have barely any inflation , with low oil prices continuing to keep costs down but food prices are also down 0.4% over the last year.

ODT reports: 0.4% inflation in line with Reserve Bank forecasts

Inflation was 0.4% for the year to March 2016, according to figures released by Statistics New Zealand today. Inflation for the March quarter was 0.2%. Both figures were in line with Reserve Bank forecasts.

Much of quarterly increase was driven by tobacco products, which rose 9.4% after an increase in excise duty in January.

Lower oil prices contributed to the low cost-of-living increase. Petrol prices fell 7.7% in the first three months of 2016, after a 5.7% fall the previous quarter.

Food prices were up 1.2% in the quarter, but were down 0.4% over the whole year.

Inflation in each of the 11 categories used to calculate the CPI:

  • Housing and household utilities- up 3%
  • Food – down 0.4%
  • Transport – down 4.6%
  • Recreation and culture – down 0.2%
  • Alcoholic beverages and tobacco – up 3.5%
  • Clothing and footwear – up 0.5%
  • Household contents and services – up 2.2%
  • Health – up 0.1%
  • Communication – down 4.6%
  • Education – up 2.6%
  • Miscellaneous goods and services – up 1.5%

Key facts: (Statistics New Zealand): Consumers Price Index: March 2016 quarter

Quarterly change

In the March 2016 quarter compared with the December 2015 quarter:

  • The consumers price index (CPI) rose 0.2 percent to a level of 1200.
  • Petrol prices fell 7.7 percent, making the largest downward contribution.
  • Low oil prices contributed to price falls for air fares.
  • Housing-related prices and food prices rose.
  • Prices for tradable goods and services fell 0.9 percent, while prices for non-tradable goods and services rose 1.0 percent.
  • After seasonal adjustment, the CPI rose 0.2 percent.

Annual change

From the March 2015 quarter to the March 2016 quarter:

  • The CPI increased 0.4 percent (up from 0.1 percent in the year to the December 2015 quarter).
  • Rentals for housing (up 2.3 percent), prices for newly-built houses excluding land (up 5.0 percent), and local authority rates (up 6.2 percent) all increased.
  • Lower prices for other private transport services and petrol made the main downward contribution.
  • Prices for non-tradable goods and services increased 1.6 percent.
  • Prices for tradable goods and services decreased 1.2 percent.

Average prices

  • The average price of 1 litre of 91 octane petrol was $1.69 in the March 2016 quarter, compared with $1.84 in the December 2015 quarter.
  • The average price of a pack of 25 cigarettes was $28.79 in the March 2016 quarter. This compares with $26.43 in the December 2015 quarter, and $13.28 in the December 2009 quarter (before annual 10 percent excise tax increases were introduced).

Quarterly inflation since Q3, 2006:


Source: Statistics NZ – CPI data visualisation