New Zealand Inflation Surprises To The Upside In Q4 2018

Summary

  • Consumer prices rise by 0.1% during the three months ending December 2018
  • New Zealand’s annual inflation rate at 1.9%
  • Fuel prices drag consumer prices lower
  • Inflation pressure is stronger than expected
  • RBNZ’s rate cut prospects diminish

 

Consumer prices posted a modest increase as fuel prices dragged lower, but inflationary pressures on the domestic front turned out stronger than expected by the RBNZ’s recent forecasts.

Although the latest inflation data are negligible, the prospects of inflation inching higher were positive news. New Zealand’s consumer prices are yet to test the upper end of the inflation target band of 3.0% before the prospects of a rate hike are back on the table.

For the moment, the increase in inflation is likely to see the markets scaling back their speculation of a rate cut from the RBNZ.

Consumer prices see a slight increase

Consumer prices in New Zealand rose by  0.1% which was slightly above the median estimates of a no change that was forecasted. However, headline inflation increased at a weaker pace following a 0.9% increase seen during the third quarter of last year.

The increase in inflation came as it reflected the seasonal factors as well. Vegetable prices fell 21% from their peak in the previous quarter. This decline outweighed other sectors such as airfares, car rentals, and accommodation. On a seasonally adjusted basis, New Zealand’s inflation rose 0.4% during the three months ending December. This represents almost the same pace of increase compared to the previous quarter.

The latest inflation data was also somewhat below the RBNZ’s forecasts. In the November monetary policy statement, the RBNZ forecast that inflation would rise 0.2% in the December quarter. Fuel prices fell sharply during the reported period. The declines in fuel prices, however, came about after the RBNZ’s forecasts. The 0.4% decline in tradable inflation is soft in comparison to the RBNZ’s estimates of a 0.1% decline.

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