Inflation steady as free study offsets ciggie tax

Prices for tertiary education fell 16 percent, largely due to the introduction of the government's first-year-free policy. Photo/123RF.

New Zealand first-quarter inflation was steady as higher prices for cigarettes and tobacco were offset by cheaper tertiary education costs.

The consumers price index rose 0.5 per cent in the three months to March 31, while annual inflation was 1.1 per cent, Statistics New Zealand said.

The result was exactly in line with the median of 12 economists surveyed by Bloomberg and compares to the Reserve Bank's quarterly projection of 0.6 percent and 1.1 percent.

The Reserve Bank is mandated with keeping annual inflation between 1-and-3 per cent over the medium term with a focus on the mid-point.

However, inflation has remained stubbornly weak and the central bank has signaled the official cash rate is likely to remain at a record low 1.75 percent "for a considerable period" given the lack of inflationary pressure. Today's data is unlikely to shake that view.

The kiwi dollar edged up to 73.34 US cents from 73.21 cents immediately before the figures were released.

The annual tobacco levy increase on Jan. 1 lifted quarterly inflation with prices for cigarettes and tobacco up 10.7 per cent on the year and 10.5 percent on the quarter. "The average price for a packet of 25 cigarettes was $35.14 in March compared with $31.68 last December," said prices senior manager Paul Pascoe.

The average price was $13.46 in the March 2010 quarter.

Prices for tertiary education, meanwhile, fell 16 percent in the March quarter. The slide was the first fall in the series since 2003 and was due to the introduction of the government's fee-free first-year policy.

Housing-related prices continued to increase and were the largest upwards contribution to the 1.1 percent CPI increase in the year ended in March. The housing and household utilities group lifted 0.6 per cent on the quarter and 3.1 per cent on the year.

Actual rentals for housing rose 0.6 per cent on the quarter and 2.1 per cent on the year. Regionally, rents increased 2.5 per cent and were up 4.2 per cent in Wellington.

Construction prices, meanwhile, increased 4.7 per cent on the year and 0.4 percent on the quarter. According to Stats NZ, it was the smallest quarterly rise since the March 2011 quarter.

"Rising building prices in Auckland and Wellington have begun to slow. Both were up 0.3 percent in the latest quarter," said Pascoe, adding it was the smallest rise in Auckland since December 2012.

Property rates and related services were unchanged in the quarter for a 3.0 per cent annual increase.

Household energy prices, which includes electricity, gas and solid fuels, rose a quarterly 0.8 per cent and an annual 2.7 per cent.

Food prices, meanwhile, lifted 0.5 per cent on the quarter and 0.6 per cent on the year, the statistics agency said.

Stats NZ said that higher prices for accommodation and petrol also contribute to the quarterly CPI rise, but were offset by seasonal falls for international airfares.

The tradables CPI, which includes goods and services that compete with international rivals, fell 0.1 per cent in the quarter and slipped 0.4 per cent on the year, weighed down by lower prices for audio-visual equipment and international air transport. This was partly offset by higher prices for petrol.

Non-tradables inflation, which focuses on domestic goods and services, rose a quarterly 0.9 per cent for a 2.3 per cent annual increase. The annual increase was driven by higher prices for cigarettes and tobacco, construction and rent.