Consumer prices rise 0.4% in second quarter; kiwi dollar drops

New Zealand consumer prices rose less than expected in the June quarter as cheaper meat and domestic airfares offset a recovery in petrol prices, adding pressure on the Reserve Bank ahead of its unscheduled economic update on Thursday. The kiwi dollar dropped.

The consumers price index rose 0.4% in the three months ended June 30, accelerating from a 0.2% increase in the first quarter, Statistics New Zealand said. That was below the Reserve Bank's forecast for a rise of 0.6%. On an annual basis, inflation was 0.4%, its seventh quarter below the central bank's target band of 1-3%, and also below expectations.

The kiwi dollar dropped to 70.82USc  after the figures were released at 10:45am from 71.4USc  immediately before. The trade-weighted index tumbled to 75.61 from 76.26.

Petrol prices rose 5.3% in the latest quarter as crude oil recovered some of last year's slump, although they were still down 8.1% from a year earlier. Vegetable prices were up 7.9% in the quarter, while new house prices rose 2.1%. Offsetting that, meat and poultry prices fell 2.7% and domestic air fares were down 9.9%, reflecting heightened competition on some local routes.

"Higher petrol and housing-related prices were countered by lower prices for meat and domestic air fairs," consumer prices manager Matt Haigh said in a statement.

Tradables inflation, which includes goods and services that compete with imported rivals, increased 0.6%, turning around a 1.2% drop in the first quarter, due to the pick-up in petrol prices. That would have been greater if the kiwi dollar hadn't appreciated during the period. Non-tradables inflation, which tracks domestic inflation, increased 0.3%, slowing from a 1% pace in March.

On an annual basis, tradables inflation fell 1.5% from a year earlier, while non-tradables were up 1.8%.

The New Zealand dollar has gained almost 8% on a TWI basis in the past 12 months, making it difficult for the Reserve Bank to drive inflation back up within its target band while rising house prices have made governor Graeme Wheeler wary of cutting too much for fear of inflaming the property market. The bank will provide an economic assessment on Thursday, and investors expect Mr Wheeler will use the opportunity to try to talk down the kiwi dollar, which has remained above the bank's projections and stifled imported inflation.

Today's figures show new housing continued to push up prices from a year earlier, rising 5.6% from a year earlier, while rental prices increased 3.3%. Property maintenance prices rose 2.9% and local body rates increased 6.2%. Electricity prices rose 2% from June 2015.

That continued to spill over into housing-related items, with furniture and furnishing prices rising 4.9% from a year earlier, and carpets and other floor coverings up 4.9%, while major household appliance prices increased 0.9%. Real estate services climbed 10% from a year earlier.

Lower transport prices offset the increase in annual inflation as cheaper petrol was accompanied by a 3.1% fall in the price of new cars, a reduction in car licensing fees pushed down prices for other private transport services 23%, and domestic and international air fares fell 6.9% and 3.8%.

Food prices were unchanged from a year earlier as more expensive fruit and vegetables were offset cheaper dairy products dragging down grocery prices by 2.3%.

Seasonally adjusted CPI slowed to a 0.2% increase in the June quarter from 0.3% in March. Seasonally adjusted tradables inflation increased 0.2%, turning around a 0.5% fall in the prior quarter, while the pace of non-tradables inflation was unchanged at 0.5%.

(BusinessDesk)