New Zealand's dollar fell from an 11-week high after Statistics New Zealand released a report in Wellington today showing consumer prices rose 0.5 percent from the second quarter. The median estimate of 13 economists surveyed by Bloomberg News was for 0.8 percent, matching the Reserve Bank's forecast. From a year earlier, prices climbed 1.8 percent.
The currency's gains have made imports cheaper, helping keep annual inflation within the 1 percent-to-3 percent range that Bollard is required to target. Slowing consumer spending and a decline in house sales suggest the central bank, which raised the official cash rate four times between March and July to 8.25 percent, needn't raise borrowing costs again, economist Robin Clements said.
``It probably offers the Reserve Bank quite a bit of relief,'' said Clements, chief economist at UBS AG in Christchurch. ``The market was starting to fret again about the possibility of another hike, so this allows them to step back from the brink.''
New Zealand's dollar fell to 77.38 U.S. cents at 1:45 p.m. in Wellington from 77.86 cents just before the report was released.
Traders expect about 9 basis points of rate cuts over the next year, according to a Credit Suisse index based on overnight index swaps. Before the report, no rate cuts were expected. A basis point is 0.01 percentage points.
Inflation slowed more than expected after a decline in the costs of drugs, doctor visits and early childhood education, reflecting government policies that took effect July 1. Excluding health charges, inflation was 0.8 percent, the statistics agency said.
Bollard's task of containing inflation has been made easier by a drop in gasoline prices from record levels in mid 2006, and a 17 percent surge in the New Zealand dollar against its U.S. counterpart the past year, which makes imported cars and appliances cheaper.
Prices of flat-screen televisions have slumped 18 percent the past year, Noel Leeming Group Ltd., an Auckland-based appliance retailer, said in an e-mailed statement. Computer and video-game console prices have also declined, it said.
The currency has been underpinned by the so-called yen carry trade, where investors borrow cheaply in Japan, where the benchmark interest rate is 0.5 percent, to invest in New Zealand's higher-yielding assets.
Bollard focuses on non-tradable inflation, a core measure of prices of goods that are not influenced by currency fluctuations and fuel.
Non-tradable prices rose 0.6 percent in the third quarter, the slowest pace in more than five years, and gained 3.7 percent from a year earlier. Economists expected 4.1 percent in the year, matching the annual pace in the second quarter.
The weighted-median inflation rate, which excludes the largest price increases and declines, was 0.7 percent in the quarter.
Ten of 13 economists surveyed by Bloomberg say Bollard will keep borrowing costs unchanged until at least June 30. Two expect a cut before then and one predicts an increase.
Retail sales in August rose at half the pace economists forecast. House sales in August fell by the most in more than nine years.
Annual inflation still includes a 15 percent drop in gasoline prices in the fourth quarter last year. Once that quarter is removed from calculations, inflation will return to about 3 percent, the central bank forecast last month. It expects the gauge will stay close to 3 percent until mid-2009.
A record-low jobless rate and increased government payments to families have stoked domestic inflation, economists said.
Companies are finding it hard to hire workers because of a skills shortage, which may stoke wage inflation, according to a report last week from the New Zealand Institute of Economic Research Inc. More than a third of companies intend to raise prices in the next three...