New Zealand Inflation Falls in Q4

New Zealand consumer prices fell in the fourth quarter as fuel prices slumped, adding to signs the central bank will cut the benchmark interest rate to a record low next week., Bloomberg 1/19/2009 3:47:53 PM

The consumer prices index declined 0.5 percent from the third quarter, Statistics New Zealand said in Wellington today. Inflation is easing after New Zealand’s economy slumped into its first recession in 10 years, curbing consumer spending and slowing the housing market. Reserve Bank Governor Alan Bollard, who began cutting interest rates in July to kick-start spending and investment, forecasts inflation will slow over the next year.

Bollard has cut the official cash rate 3.25 percentage points to 5 percent since July. He will probably lower it by 1 percentage point to 4 percent on Jan. 29, the lowest level since the benchmark was introduced in March 1999, according to six of eight economists surveyed by Bloomberg. One expects a half-point cut and one predicts a three-quarter-point reduction.

Bollard, who is required to keep annual inflation between 1 percent and 3 percent, said last month that slowing growth will return inflation to his target range by the middle of 2009. He forecast prices fell 0.3 percent in the fourth quarter.

Prime Minister John Key last week said the economy may not grow in 2009 as a deepening global recession curbs exports and prompts companies to fire workers.

Inflation is slowing after reaching an 18-year high of 5.1 percent in the year ended Sept. 30, 2008, amid soaring fuel and food and air travel costs.

Fuel prices are now falling. Gasoline prices dropped 22 percent from the third quarter, the statistics agency said today. Excluding fuel, consumer prices rose 0.9 percent, it said.

Appliances, computers and digital cameras were also cheaper. Vegetable prices fell 16 percent.

Still, the cost of international air travel and package holidays increased in the quarter, while overall food prices rose 1.5 percent, the agency said.

From a year earlier, fuel prices have fallen while food has increased 9.4 percent, accounting for half the increase in overall consumer prices, the agency said.

Bollard’s primary focus is on non-tradable inflation, a core measure of prices that are not influenced by currency fluctuations and fuel.

Non-tradable prices rose 0.8 percent from the third quarter. The measure gained 4.3 percent from a year earlier, the fastest pace in three years, after rising 4.1 percent in the year to September.

Non-tradables inflation was underpinned by rising rents and the cost of water and electricity. The cost of buying and building a new house fell 0.2 percent, the first decline in almost 10 years.

From a year earlier, power prices gained 7.7 percent while rents and the cost of buying a house also increased.

New Zealand Inflation Falls in Q4