CPI increase of 0.7pc predicted for quarter

New Zealand's inflation rate is likely to have exceeded the central bank's target range for a third straight quarter at the start of 2006, but analysts do not expect that to provoke a rise in interest rates.

The median forecast of 14 economists in a Reuters poll was for the consumer price index to have risen 0.7 per cent in the first quarter, the same as the rise in the previous quarter, driven by higher oil prices and the still-robust housing market.

From a year earlier, CPI is seen rising 3.4 per cent. While that would be a slight pick-up from the December quarter and also above the Reserve Bank of New Zealand's 1 per cent to 3 per cent target band, analysts say the data are unlikely to alter monetary policy.

"The RBNZ had highlighted that inflation would likely remain significantly above the band during the first half of this year," said Shamubeel Eaqub, economist at Goldman Sachs JBWere. "The number would have to be significantly higher than the 0.7 per cent we are expecting, which is pretty high as it is."

In March, the RBNZ projected CPI would rise 0.6 per cent in the first quarter and 3.3 per cent from a year ago.

Statistics New Zealand will release first quarter inflation data tomorrow.

The New Zealand dollar's fall of about 12 per cent this year is not expected to have fed through to inflation yet, although it could put upward pressure on import prices later.

Analysts at Westpac Bank said in a report that they expected the steep drop in the currency to boost inflation by about 1 per cent by early 2007.

The RBNZ, which will review its official cash rate on April 27, has raised interest rates by 2.25 percentage points since January 2004 to 7.25 per cent. It said last month that it expected to keep them there for the rest of the year.

Many analysts expect a rate cut by the end of September after the economy contracted at the end of 2005 for the first time in more than five years.

Robin Clements, chief economist at UBS NZ, said the Reserve Bank was unlikely to change its policy outlook even if the annual inflation rate shows a slight pick-up.

Rising prices

* CPI forecast to have risen 0.7 per cent in the March quarter.
* Expected to have risen 3.4 per cent from a year earlier.
* Inflation is not expected to prompt another interest rate rise.

- REUTERS