New Zealand Q2 inflation expected to pick up, but underlying pressures weak

Marco Green
July 20, 2018

According to the central bank, the model estimates the common component of inflation in the CPI basket, the tradable basket, and the non-tradable basket, based upon separate factors for the tradable and non-tradable sectors.

The kiwi traded at 67.58 United States cents as at 8am in Wellington from 67.63 cents in NY on Friday and from 67.75 cents in Wellington at the end of last week.

The headline figure was driven by an 0.8% lift in rents, 1.1% increase in the cost to build new dwellings and 1.7% jump electricity prices during the quarter. In early afternoon inter-bank trading, the shekel-dollar exchange rate is down 0.55% against the dollar at NIS 3.621/$ and down 0.39% against the euro at 4.249/€, Globes reports.

"New Zealanders are paying more to keep their homes running", prices senior manager Paul Pascoe said.

GDP growth is now on track for a 4.6 percent pace in 2018, up 0.4 percentage points from the March reading.

Rates, property maintenance services, and home insurance are all higher than they were this time previous year, Pascoe said.


Food prices also rose by 0.8%, mainly due to seasonal fluctuations in vegetable prices, as did petrol prices which increase by 3.2%. Without the impact of food or housing-related price movements, CPI increased by 1.7% and 1% respectively over the year.

"It was cheaper to buy a used vehicle this quarter as dealerships looked to move some stock, but that was offset by higher running costs", said Pascoe.

Home entertainment prices fell in the June 2018 quarter, with better value audio-visual equipment and lower prices for subscriber TV.

Rudings said the kiwi could continue to push higher against the Aussie but its move against the greenback may be tempered by Federal Reserve chair Jerome Powell's testimony to the Senate on monetary policy if he continues to be upbeat on the U.S. economy. "It was kind of a middling result", Borkin said. The bank's next rate decision is scheduled for August 29.

At the June review, Reserve Bank Governor Adrian Orr said the OCR would remain at 1.75 per cent for now.

In its June monetary policy statement, the RBNZ said while its overnight cash rate will remain at 1.75% "for now", it added that it was "well positioned to manage change in either direction - up or down - as necessary".

Other reports by Click Lancashire

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