Petrol price falls main cause of second quarter of deflation

Falling petrol and diesel prices were the major factor leading to a 0.3 percent fall in inflation during the first three months of this year, the second quarter in a row of deflation.

The annual inflation rate for the year to March 31 was 0.1 percent.

However, if the rise in petrol prices seen late in the quarter and into this month is sustained, transport fuels will have an upward impact on inflation in the June quarter, Statistics New Zealand said. (See graph below)

The Consumers Price Index outcome was slightly more deflationary than the 0.2 percent reduction anticipated in a Reuters poll of economists. The last time there were two quarterly falls in the CPI was in the December 1998 and March 1999 quarters.

The 0.1 percent annual CPI increase is the smallest annual movement since the year to September 1999, when prices decreased 0.5 percent in the wake of the Asian financial crisis.

Non-tradable inflation was up 1.1 percent for the quarter, reflecting a 12 percent increase in the price of cigarettes and tobacco caused by increasing excise taxes, a 12 percent seasonal increase in the price of fruit, a 0.8 percent increase in housing rents, and a 0.8 percent rise in the cost of a newly built home, excluding land.

The data showed a slower rate of increase in Canterbury for the price of a newly built house, up 0.2 percent for the quarter, having risen quarterly in a range of 1.3 percent to 3.4 percent from 2012 to 2014, as the city began its post-earthquake reconstruction.

"It is too early to say whether the latest quarterly movement for Canterbury indicates a slowdown," Statistics New Zealand said in commentary released with the CPI data.

On an annual basis, non-tradable inflation rose 2.3 percent, the lowest since the year to September 2012, driven by a 14 percent rise in tobacco prices, a 5 percent rise in the cost of a newly built home, a 2.3 percent increase in rents, and electricity prices up 3.6 percent.

Meanwhile, tradables inflation fell 2.8 percent, the largest fall since the series began in 1999, with vehicle fuels and lubricants down 21 percent and audio-visual equipment prices down 13 percent.

"Excluding cigarettes and tobacco, the annual CPI decreased 0.2 percent; excluding petrol, the CPI increased 1 percent over the year," Statistics NZ said.

The biggest influences on the 0.3 percent deflation in the March quarter were petrol, down 11 percent, international airfares down 15 percent, and a 6.6 percent fall in the price of package holidays.

(BusinessDesk)