Inflation takes off; kiwi rises

New Zealand consumer prices rose at their fastest annual pace in two-and-a-half years in the final three months of 2016 as a recovery in global oil prices pushed up the cost of petrol, and the nation's bubbling property market continued to drive up house prices. The kiwi dollar rose above 73USc.

The consumers price index rose 0.4% in the three months ended December 31 for an annual pace of 1.3%, Statistics NZ said. That was the fastest annual pace since June 2014 and the first time headline inflation has been within the Reserve Bank's target band of 1-3% in two years. Economists had been picking quarterly inflation of 0.2% for an annual pace of 1.2%.

Petrol prices rose 4.1% in the quarter, reducing the annual decline to 0.5%. A slump in oil prices and a resilient New Zealand dollar have kept a lid on headline CPI as households benefited from cheaper imports and lower transport costs, though the turnaround in energy costs heightened expectations for inflationary pressures to emerge.

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

The New Zealand dollar rose to 73.03USc from 72.70USc immediately before the data was released. The trade-weighted index rose to 79.68 from 79.34, while the kiwi rose to 96.31Ac from 95.96Ac.

Other transport costs also rose in the quarter, with international air fares up 11% and domestic fares rising 9.7% on heightened demand ahead of the holiday period. On an annual basis, international air fares fell 5.7% and domestic prices were down 1%.

Inflationary pressures from higher oil prices have coincided with the prospect of a more aggressive tightening cycle by the US Federal Reserve, which is having to balance the stimulatory policies of the new Donald Trump-led White House at a time of robust economic growth. Cheap oil in recent years and the tepid inflation environment has made life difficult for New Zealand's Reserve Bank, which delayed cutting interest rates too aggressively for fear of stoking demand for an already hot property market.

Today's data show prices for new housing rose 1.4% in the December quarter for an annual increase of 6.5%, the biggest yearly gain since September 2005. Real estate services, which includes commissions paid to agents, were up 4.7% in the quarter for a 12% annual gain. Rental prices were more sedate, with a quarterly increase of 0.5% for an annual gain of 2%.

Local body rates rose 0.2% in the quarter for an annual increase of 3.2%, while rubbish collection and recycling prices were up 2.5% in the three-month period and 5.2% in the year. Electricity prices fell 0.2% in the quarter for a 2.3% annual gain.

Tradables inflation, which includes goods and services that compete with international rivals, rose 0.3% in the quarter for an annual decline of 0.1%. Non-tradables inflation, which focuses on domestic inflation, rose 0.6% in the quarter for a 2.4% annual pace.

Reserve Bank governor Graeme Wheeler is delivering his annual speech to the Canterbury Employers Chamber of Commerce today. However, the bank has made the annual occasion different from previous years in that it's off-the-record and won't touch on monetary policy because of the proximity to the February 9 review.

(BusinessDesk)