NZ consumer prices rise at slowest annual pace since 1999 on cheap petrol

New Zealand consumer prices rose at their slowest annual pace since 1999 in the December quarter as cheap petrol pushed inflation below the Reserve Bank's expectations, and opens the door for more interest rate cuts this year. The New Zealand dollar dropped half a cent.

The consumers price index increased just 0.1% in 2015, its smallest reading since September 1999 when prices fell, according to Statistics New Zealand. That was short of the Reserve Bank's expectation for a 0.4% rise, and extended its run below the bank's target band of between 1-3%.

The CPI fell 0.5% in the three months ended December 31, the biggest quarterly decline since December 2008, from an increase of 0.3% in September. Cheaper petrol drove both the quarterly and annual numbers, falling 7% in the final three months of 2015 for an annual drop of 8.1%.

The New Zealand dollar fell to 64.14USc, from 64.70USc  immediately before the release of the data.

Central bank governor Graeme Wheeler cut the official cash rate to 2.5% in December, and indicated rates would stay on hold on the expectation inflation would return to the target band on a weaker New Zealand dollar and as last year's petrol price declines washed through the data. The Reserve Bank had predicted the CPI would climb back within the band in the March quarter of this year, but global oil prices have slumped to 12-year lows with a worldwide glut set to continue.

Last week's food price index was softer than expected, prompting ASB Bank economists to downgrade their forecast for quarterly inflation to a 0.3% decline, and today's figures show cheap vegetables added to the downward pressure. Vegetable prices fell 17% in the December quarter and were down 0.8% for the year. Cheaper milk, cheese and eggs also kept a lid on inflation, falling 3.7% in the quarter for an 8.7% drop in 2015.

International airfares rose 5.5% and prices for domestic flights were up 7.9% in the December quarter, offsetting the decline. On an annual basis, international fares fell 8.1% and domestic flights were down 1.7%.

Prices for new housing continued to rise, with new builds up 1.2% in the quarter for a 5% annual gain. That was more pronounced in Auckland where prices increased 1.5% in the December period and 7.2% in the year. The country's biggest city is going through a housing boom as it tries to invigorate supply, which has lingered behind growing demand fuelled by the nation's record levels of inbound net migration.

Rents also increased, up 0.6% in the quarter for a 2.5% annual gain, while local body rates gained 0.4% in the three months through December for a 6.2% rise in 2015. Prices for real estate services rose 3.5% in the December quarter for a 9.3% annual increase.

Non-tradables inflation, which covers domestic goods and services that don't face international competition, rose 0.5% in the December quarter from a reading of zero in September. On an annual basis, non-tradable inflation rose 1.8%.

Tradables inflation shrank 1.8% in the quarter, turning around a 0.7% rise in the September period, for a 2.1% annual decline.

(BusinessDesk)