Benign inflation, a high dollar and falling dairy prices
may cause the Reserve Bank to rethink its rising interest rate
policy with an official cash rate review next week.
The consumer price index, the official measure of inflation,
was 0.3% for the three months ended June, down from market
forecasts of 0.4%.
Annual inflation was 1.6%, down from forecasts of 1.8% and
1.9%. However, the benign annual inflation rate hid some
hooks for households.
Statistics New Zealand figures non-tradeable inflation
increased 2.7% on an annual basis. But overall inflation was
being contained by low tradeable inflation of 0.1%, courtesy
of the high New Zealand dollar.
ASB economist Christina Leung said the dollar was high for
understandable reasons, particularly the Reserve Bank's
''But the 8.9% fall in dairy prices overnight, added to the
series of falls over the year, give one very good reason why
we should see a lower New Zealand dollar over the next year.
In turn, this would mean higher tradeable inflation,'' she
The housing and utilities group showed a 1.2% rise in the
June quarter and was a key contributor to the second-quarter
increase. Driving that was a 3.7% increase in energy prices
in the quarter. Energy prices rose 4.1% in the year.
Rents increased 0.6% and construction costs increased 1.2%.
Statistics NZ highlighted the relatively larger increase in
construction costs for Canterbury and Auckland over the past
year which went up 6.4% and 5.5% respectively - higher than
the nationwide average of a 4.6% annual increase.
Westpac senior economist Felix Delbruck said the inflation
report itself amounted to only a small down side surprise for
the Reserve Bank.
But in combination with the fall in dairy auction prices
overnight, the data was material for the interest rate rises.
In the June Monetary Policy Statement, the Reserve Bank
signalled it intended lifting the OCR on July 24 before
pausing. Markets were pricing in a 0.25% rise in the OCR to
3.5% as a ''done deal'', he said.
''After today's data double-whammy, we think markets should
pause for thought. A July OCR hike may not be quite such a
sure thing as previously thought.''
Green Party co-leader Metiria Turei said families were facing
rising costs from food, power and mortgages or rents and most
were getting no wage increases.
''Workers, whether tenants or home owners, are copping it on
Government figures on Tuesday showed average residential
electricity prices for the year ended March were 2.3% higher
than for the previous year, she said. Prices were now 22%
higher than when National came into office.
Families were being stretched so far they could no longer
afford the basics.
''It means children going without good food, decent shoes and
a bed of their own in order to make ends meet.''
The so-called competitive power market had never worked.
Demand was slack, if not falling, but power prices were still
rising, Mrs Turei said.
Labour Party energy spokesman David Shearer said CPI figures
showed just how much the Government's updated statistics
downplayed the increase in prices under the new reporting
''The Government was smugly boasting about a `small' 2.3%
increase in power prices to March. What the Energy Minister
[Simon Bridges] was not saying was the increase is smaller
because the Government has changed the way it calculates
electricity pricing. The CPI proves Mr Bridges was just
Too many New Zealanders were living in cold, damp houses
because they could not afford to put the heater or electric
blankets on, Mr Shearer said.
At a glance
•Annual inflation at 1.6%,
below Reserve Bank 2% mid-point.
•Rethink possible on next week's OCR rise.
•Benign inflation rate hides increasing costs for households.
•Opposition parties focus on increased electricity costs.