CPI figures not set to surprise

By Brian Fallow

WELLINGTON - Figures out tomorrow are expected to show that inflation remained subdued in the March quarter and poses no short-term threat to current interest rates.

Private sector forecasters expect a rise of 0.4 per cent in the consumers price index, excluding credit costs (CPIX), making 1.2 per cent for the year. The Reserve Bank has forecast a 0.3 per cent rise.

The bank and the markets will be watching for early signs that the warming up of the housing and retail sectors is starting to nudge inflation higher.

Retail sales continued to strengthen in February, a trend that economists see as increasing the scope for retailers to rebuild profit margins squeezed during last year's sharp fall in the New Zealand dollar.

But even economists like those at ANZ Bank and Deutsche Bank who believe the Reserve Bank is too optimistic about the inflation outlook do not expect anything in tomorrow's numbers to trigger an increase in the official cash rate when the central bank reviews it on Wednesday.

Non-tradables inflation has been unusually weak over the past year and even turned negative in the December quarter as falling rents, cheaper sections and lower construction costs pulled the housing component of the CPI down 0.8 per cent.

That fall is expected to be reversed, housing having rebounded strongly in the March quarter. The biggest contributor to the CPI rise is expected to be food prices.