KEY POINTS:
Cheaper petrol was the main factor in the New Zealand Consumers Price Index (CPI) falling 0.2 per cent in the December quarter.
It was the first negative inflation figure in nearly six years.
Figures published today by Statistics New Zealand (SNZ) put the fall in the price of petrol during the December quarter at 15.2 per cent, out of 3.9 per cent fall in combined transport prices.
A 9.7 per cent rise in international air transport prices had partly offset the decrease in petrol prices, SNZ said.
The fall in December quarter inflation followed rises of 0.7 per cent and 1.5 per cent in the September and June quarters respectively.
The extent of the easing in inflation would come as a surprise to most economists, with the median forecast in a Reuters poll having been for an unchanged CPI.
The quarterly decrease took the annual CPI increase to 2.6 per cent, from increases of 3.5 per cent and 4 per cent for the years to the September and June quarters respectively. The economists' median forecast for the December year had been for an increase of 2.8 per cent.
With the December quarter decrease, annual inflation was now back within the Reserve Bank's 1 to 3 per cent target band. The question was whether Reserve Bank Governor Alan Bollard would lift interest rates at the next Official Cash Rate (OCR) review on January 25.
"This gives some comfort to the Reserve Bank and if you combine it with the other data we've seen since early December we don't think the Reserve Bank's going to hike next week," said First NZ Capital chief economist Jason Wong.
When he left the OCR at 7.25 per cent in early December, Dr Bollard warned that while the short-term inflation outlook had improved, the Reserve Bank was "less optimistic" about medium-term prospects.
Household spending continued to show surprising resilience and the labour market remained firm, while the housing market appeared to have developed new momentum.
The Reserve Bank's projections and risk assessment suggested a firmer monetary policy stance could still be needed to maintain downward pressure on inflation and further tightening could not be ruled out, Dr Bollard said at the time.
SNZ said today that had petrol prices not changed from the September quarter, the CPI would have increased 0.6 per cent in the December quarter.
Of 11 groups in the CPI, three decreased in the December quarter.
The most significant increases were from household and household utilities prices which rose 0.9 per cent in the December quarter.
The most significant increases in the group were from actual rentals for housing, up 0.7 per cent, and the purchase of new housing, up 1.0 per cent.
Recreation and culture prices rose 1.5 per cent in the December quarter, due to a 10.5 per cent price increase for package holidays, SNZ said.
Along with the reduction in the price of petrol, the other significant individual downward contribution to the CPI in the December quarter was from a 13.2 per cent decrease in the price of vegetables.
Along with the rises for international air transport and packaged holidays, the most significant individual upward contributions came from a 16.6 per cent rise in the price of fruit and a 4.3 per cent rise in meat and poultry prices.
Following the announcement the New Zealand dollar fell from 69.56 US cents before the announcement to 68.97 cents at 11.47am (NZT) according to Bloomberg.
- NZPA
