Annual inflation climbs to near 2%

Michael Gordon.
Michael Gordon.
Annual inflation is up slightly to 1.9%, just shy of Reserve Bank expectations it would hit 2%, the mid-point of its 1%-3% target range.

Statistics New Zealand's consumer price index for the quarter to December rose just 0.1%, taking annual inflation to 1.9%.

Towards the end of the quarter there was a sharp decline in petrol prices and a plunge from high winter vegetable prices, which took pressure off the inflation rate coming in higher.

Economists had been expecting the consumer price index would increase zero to 0.1% in the three months, for an annual increase of 1.8% to 1.9%.

Westpac predicted the interest-driving official cash rate would continue to be held at the record low 1.75% until ''late 2020'', while ASB predicted it would be held until August 2020.

Westpac senior economist Michael Gordon said while inflation was close to the Reserve Bank's mid-point 2%, it was unlikely to break higher soon.

''Market expectations were for a flat quarterly out-turn,'' he said.

The December quarterly inflation rate was typically on the low side due to seasonal factors, in particular a sharp drop in vegetable prices.

Mr Gordon said the recent drop in fuel prices would drag the headline inflation rate down during early-2019.

''We expect a gradual pick-up in domestic inflation pressures as the labour market tightens, but there will be some way to go before inflation tests the upper end of the [1%-3%] target range.''

ASB economist Kim Mundy said the quarterly 0.1% lift in inflation was slightly more than she had expected, and the soft headline result masked a lift in underlying inflation pressure during the quarter.

''However, given the recent slowing in economic growth we expect the Reserve Bank to remain patient'', and leave the official cash rate on hold until August next year, she said.

Ms Mundy said economic momentum had eased during the second half of 2018, which meant there was a risk some underlying inflation pressure could also slow in the coming quarters.

Annual inflation had ranged between 1.1% and 2.2% since December 2016, Stats NZ said.

The central bank has consistently signalled no change in interest rates on the immediate horizon, given the lack of inflationary pressure, and today's data is unlikely to shake that view, BusinessDesk reported.

Petrol prices fell 0.6% in the quarter and were up 11.1% in the year.

''The price of petrol fell continually throughout the quarter, down from highs in October,'' prices senior manager Paul Pascoe said.

Stats NZ said the overall 0.1% quarterly lift was led by seasonal rises in international airfares, but these were largely offset by seasonal falls in vegetable prices.

Household energy prices were unchanged on the quarter and were up 2.3% on the year. Prices for newly-built homes lifted 0.9% on the quarter and were up 3.6% on the year. - Additional reporting: BusinessDesk

simon.hartley@odt.co.nz

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