New Zealand inflation hits 2.2% in first quarter, highest in five years

Source Stats NZ

Source Stats NZ

Petrol prices have climbed sharply since the start of the year, pushing inflation to the highest level since 2011.

The quarterly rise in inflation was also boosted by higher food prices, which rose 2.2 per cent on the quarter on the back of a 16 per cent jump in the price of fruit.

However, food prices were "unusually high" in the quarter. The kiwi was at 93.70 Australian cents from 93.59 cents yesterday and fell to 4.8439 Chinese yuan from 4.8470 yuan.

The New Zealand Dollar rallied against its major counterparts following a better-than-expected CPI report.

Why is inflation positive for the New Zealand Dollar?

"Business surveys signal that many retailers are looking to increase their prices further over the coming year". But, higher interest rates also attract foreign investor flows which in turn bids up the currency.

New Zealand's inflation accelerated to a surprisingly brisk 2.2 percent in the first quarter, its highest in five years, but that was unlikely to prompt the central bank to waver in its determination to keep interest rates at record lows. The decline occurred despite a weaker dollar as the U.S. dollar index (DXY) had remained under pressure during most of the decline in the currency pair.

"Rising petrol prices along with the annual rise in cigarette and tobacco tax lifted inflation", said Attewell.

Statistics New Zealand released its Consumer Price Index, the official measure of inflation, yesterday.

For the major part of a year ago inflation remained outside the bank's target band of 3 percent and 6 percent.

Alcoholic beverages and tobacco prices rose 4 percent on quarter in the March quarter, influenced by a 9.7 percent increase in cigarette and tobacco prices.

The Recreation and Culture Index (0.11 percentage points), the Communication Index (0.11 percentage points) and the Clothing and Footwear Index (0.07 percentage points) registered the largest downward impacts on annual inflation, mainly reflecting lower prices for package holidays, mobile phones and garments respectively.

ANZ chief executive Cameron Bagrie said yesterday as the economy increasingly butted up against capacity pressures, domestic pressures were expected to broaden further beyond housing and into the labour market.

"We expect the current lift in headline inflation will be temporary, as does the RBNZ".

In addition, there are some encouraging signs that house price inflation has probably peaked and hence the spill over effects on non-tradable inflation will slow.

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