The Economy Hub: No risk of deflation in NZ

Despite another quarter of low inflation New Zealand does not need to worry about deflation hurting economic growth, ANZ senior economist Philip Borkin told The Economy Hub today.

Consumer Price Index data released this week showed annual inflation dropping to just 0.2 per cent from 0.4 per cent.

The fall was driven largely by lower fuel prices.

But while inflation had been low for a long time - outside the Reserve Bank's target band for two years now - inflation expectations remained relatively buoyant, Borkin said.

"While expectations are falling as well, long term expectations remain around 2 per cent," he said. "We seem at little risk of a deflationary spiral."

The Reserve Bank is expected to cut the official cash rate again on November 10 as it seeks to ease the kiwi dollar and push some inflation back into the economy.

That cut was now so well priced in that it looked inevitable, Borkin said.

But another cut in February was looking less certain as the rest of the economy continued to strengthen.

"The economy is performing exceptionally well at the moment so there is certainly some merit in the debate about whether they should cut anymore," Borkin said.

NZIER senior economist Christian Leung said she expected to see some inflation coming back into the economy over the next quarter as the big falls in petrol prices from late last year started to flow out of the data.

"So we doe expect that as that drops out we're going to see annual inflation lift back towards the Reserve Bank's target band."