New Zealand inflation was a little hotter than markets expected

  • New Zealand CPI fell sharply in the December quarter last year, reflecting a steep fall in petrol prices along with cheaper vegetables and cigarettes.
  • Quarterly CPI grew by 0.1%, leaving the increase on a year earlier at 1.9%. Markets were looking for an unchanged quarterly reading and annual increase of 1.8%. The RBNZ had forecast CPI to lift 2% from the end of 2017.
  • Underlying CPI measures rose marginally over the year compared to what was seen in the year to September.
  • The RBNZ will release its favoured underlying inflation measure later in the session. In the past it has led to some big moves in the New Zealand dolar.

New Zealand consumer price inflation (CPI) fell sharply in the December quarter last year, reflecting a steep fall in petrol prices along with cheaper vegetables and cigarettes.

According to Statistics New Zealand (StatNZ), CPI grew by 0.1% in the three months to December, slowing sharply from a 0.9% gain the prior quarter.

Despite the sharp slowdown, the result was a touch firmer than the median forecast expected by economists.

The quarterly gain left CPI up 1.9% from a year earlier, unchanged from the level seen in the year to September. That too was marginally above the 1.8% pace eyed by markets.

The Reserve Bank of New Zealand’s (RBNZ) inflation target is a range between 1% to 3%. It had been expecting CPI to increase 2% in the year to December.


Tradable prices — those primarily influenced by global factors — fell by 0.4% over the quarter, leaving them up 0.9% over the year. Non-tradable prices — those driven by domestic factors — increased by 2.7% compared to the levels of a year earlier.

“The 0.1% quarterly rise in CPI was led by typical seasonal rises in international airfares, which were largely offset by seasonal falls in prices for vegetables,” Stats NZ Said.

“Prices for games, toys, and hobbies also contributed to the rise, driven by the release of popular, new, and more expensive electronic video games during the quarter.”

Vegetable prices tumbled 21% during the quarter, seeing broader food prices decline by 1.3%.

Along with cheaper veggies, cigarette and tobacco prices also fell for the first time since December 2009 before the introduction of a 10% increase in excise tax that kicked in on January 1.

The average price of petrol also fell 0.6% from the September quarter, largely reflecting steep falls in the latter parts of the year.

“The price of petrol fell continually throughout the quarter, down from highs in October,” Senior Prices Manager at StatNZ Paul Pascoe said. “By the last week of December, the pump price was 8.3% below the December quarter average.”

Excluding the impact of volatile price movements, underlying inflationary pressures were slightly stronger than the headline increase with the trimmed-mean measures lifting by between 2% to 2.1% from a year earlier.

That was an increase from the 1.8% to 1.9% range seen in the year to September last year, indicating that underlying inflation is slowly starting to build.

The New Zealand dollar has risen on the news, increasing to .6750 against the greenback from .6720 prior to the report’s release. It’s also gained against the major crosses, including the Aussie dollar.

Following the StatsNZ report, all attention will now turn to the RBNZ’s Sectoral factor model — it’s favoured measure of underlying inflation — that will be released at 3pm in Wellington (1pm AEDT).

Previously, it reported that underlying inflation rose by 1.7% in the year to September. In the past, this figure has often been more influential on New Zealand financial markets than the CPI report itself.

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