Low inflation would inflame the debate on whether New
Zealand was witnessing a structural shift in the evolution of
inflation, ANZ economist Natalie Denne said yesterday.
The December Consumer Price Index (CPI), the official measure
of inflation, fell 0.2%, weaker than market expectations and
the Reserve Bank forecast of a 0.1% rise. Annual inflation
edged up to 0.9%, the third successive reading at or below
The Reserve Bank has an inflation target of between 1% and
3%. Ms Denne said repeated undershooting of inflation would
inflame the debate on whether there had been a structural
shift in the evolution of inflation.
''Inflation suppressants in the form of deleveraging - think
credit growth below GDP - and a high New Zealand dollar look
set to be around for a while yet.''
Without a the rebuilding of Christchurch and a ''perkiness''
across the housing market, the case for a lower official cash
rate would be solid, she said.
However, both presented risks to the medium-term outlook for
inflation which carried the implication the odds remained
tilted towards the next move in the OCR being up as opposed
to down, Ms Denne said.
Most economists are moving their forecasts from the Reserve
Bank lifting its OCR from the current low of 2.5% from
December to March next year. Labour Party finance spokesman
David Parker said the latest deflation showed a need to
reform the Reserve Bank's ''tunnel vision mandate''.
Prices dropped in the last three months of the year while the
housing market took off and the dollar remained stubbornly
high. That showed the need for monetary policy reform, he
''Our monetary policy has passed its use-by date. The Reserve
Bank has a tunnel vision mandate that requires it to
primarily consider the prospect of increasing inflation. This
pushes other big issues - our overvalued and damaging
exchange rate - down the priority queue.''
Labour had long argued the Reserve Bank must be able to look
beyond inflation and give weight to other important issues
such as the exchange rates and jobs, Mr Parker said. That
would help exporters and manufacturers and allow them to
create good jobs that paid a decent wage.
Statistics New Zealand figures showed that a 1.8% seasonal
fall in food prices was a large contributor to the
weaker-than-expected inflation figures.
Discounting in furniture, clothing and personal effects,
along with the general weakness in imported retail items, saw
tradeable inflation fall 0.7%. That was partially offset by a
0.3% increase in non-tradeable prices, led by an increase in
At a glance
• December inflation: -0.2%
• Annual inflation: 0.9%
• Lower food prices main contributor
• OCR likely to remain 2.5% until March