Inflation rate slips to 3pc, but food prices up

Falling fuel prices have pushed the latest CPI increase down to just 0.3pc.

New Zealand's annual inflation rate slipped to 3 per cent in the March quarter, but food prices still packed a nasty punch.

The annual rate has fallen from an 18-year high of 5.1 per cent as recently as the September quarter, and from a 3.4 per cent annual rate in December.

For just the three months to March, the Consumers Price Index rose 0.3 per cent, following a decrease of 0.5 per cent in the December quarter, Statistics New Zealand (SNZ) said today.

The data was in line with economists' expectations.

A food price rise of 1.2 per cent was a key factor in the increase for the March quarter, as was a 1.8 per cent rise in the alcoholic beverages and tobacco group.

The main downward pressure for the quarter came from a 1.5 per cent fall in transport prices.

Used cars were up 3.5 per cent in the quarter, cigarettes up 4.2 per cent, and new cars up 3.7 per cent. International air transport dropped 16.5 per cent and diesel fell 19.2 per cent.

For the year to March, food rose 8.8 per cent and housing and household utilities were up 3.6 per cent, while transport costs were down 2.6 per cent.

Electricity rose 7.5 per cent during the year, housing rentals gained 2.1 per cent and ready-to-eat food lifted 6.2 per cent, while petrol fell 9.3 per cent, audio-equipment was down 20.8 per cent, and used cars lost 4.5 per cent.

In the March quarter the tradable component of inflation - those goods and services imported or in competition with foreign goods - fell 0.4 per cent. The most significant downward contribution came from international air transport.

The non-tradable component - where there is no foreign competition - rose 0.7 per cent, with the key increases coming from cigarettes and tobacco, and education.

SNZ also published latest Food Price Index data today showing food prices gaining 0.5 per cent in the month of March.

Meat, poultry and fish prices were up 1.4 per cent, and fruit and vegetables up 1.6 per cent, while grocery food prices fell 0.2 per cent.

Lettuce lifted 55.5 per cent, strawberries were up 61.5 per cent, plain biscuits up 14.2 per cent and fresh chicken up 3.2 per cent, while apples were down 16.9 per cent, potatoes down 9.4 per cent, and cheddar cheese down 6.9 per cent.

The Reserve Bank, which is required to keep inflation within a 1-3 per cent target range in the medium term, said last month it expected annual CPI inflation to temporarily drop below 1 per cent in the September quarter, before returning to around 2 per cent.

With New Zealand in recession throughout 2008, the longest contraction in more than 30 years, the Reserve Bank lowered the official cash rate since last July from 8.25 per cent to 3 per cent now.

It is widely expected to lop off another 0.5 percentage points at its next review on April 30.

ASB chief economist Nick Tuffley said the data was an endorsement of the Reserve Bank's forecasts implying the Official Cash Rate would reach 2.5 per cent and "should inspire greater confidence that long-persistent inflation pressures will evaporate relatively swiftly."

"Although there are signs that deterioration in the global economy is slowing, the global outlook is still set to be weaker than the assumptions underpinning the Reserve Bank's NZ outlook," said Tuffley.

The market was, however, pricing in some chance of an OCR hike by the end of the year, he said.


- NZPA