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Stats NZ reports annual inflation of 1.4%; quarterly inflation of 0.9% slightly above market and RBNZ forecasts

Stats NZ reports annual inflation of 1.4%; quarterly inflation of 0.9% slightly above market and RBNZ forecasts
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By Bernard Hickey

Statistics New Zealand has reported the Consumer Price Index rose 0.9% in the September quarter from the June quarter, which was just above market expectations and the Reserve Bank's expectations for quarterly inflation of 0.8%.

Economists said they still expected the Reserve Bank to hold off hiking the Official Cash Rate (OCR) until the March quarter of next year despite inflation being a touch above expectations. The New Zealand dollar intially rose around 20 basis points and two year wholesale interest rates, which are one of the factors driving fixed mortgage rates, rose 4 basis points. The currency later dipped again on reports a deal to lift America's debt ceiling had fallen over.

The quarterly increase compared with a 0.2% rise in the previous quarter and was the strongest quarterly inflation since the June quarter of 2011. Higher petrol (up 5.6%) and vegetable prices (up 20%) were the main drivers and Statistics NZ said the CPI increase in the quarter without those two influences would have been 0.3%.

Regular petrol prices averaged NZ$2.17/litre through the quarter, but were falling towards the end of the quarter. Economists said the unwinding the vegetable price increases and the lower petrol prices would unwind much of that boost in the coming couple of months.

ANZ Senior Economist Mark Smith said the Reserve Bank could wait until next year before tightening monetary policy.

"A low inflation starting point, high NZD, fickle (but improving) global scene, and still high degree of policy traction provide the RBNZ with the option of deploying prudential policy measures and waiting for the external environment to settle before lifting the OCR," Smith said.

Consumer price inflation in the year to the September quarter was 1.4%, which was up from 0.7%  and 0.9% in the previous two quarters and the highest annual inflation rate since the March quarter of 2012. It is also the first time the annual inflation rate has gone back into the Reserve Bank's 1-3% target range since the June quarter of last year.

Local authority rates rose 3.8% in the quarter (although annual increases usually happen in the September quarter), package holidays rose 6.2% and household and utilities costs rose 0.9%. House rentals rose 0.5% in the quarter, with rents rising 1.7% in the quarter in Canterbury and 1.0% in Auckland.

Electricity costs rose 0.6% in the quarter and are up 3.6% for the year, despite flat demand an increased supply of electricity, along with lower wholesale prices.

Westpac Chief Economist Dominick Stephens said annual construction cost inflation was gathering momentum and was now over 4% nationally.

"This is consistent with our long-held view that the Canterbury rebuild will provoke more inflation pressure than the Reserve Bank has allowed for," Stephens said.

He noted residential rents were rising at a slower pace everywhere except Canterbury. "This suggests that the buoyant housing market has more to do with financial factors than physical shortages (except in Canterbury)," he said.

Stephens said the CPI was consistent with his view the burgeoning construction industry and rising house prices would push the economy beyond capacity and generate inflation pressures that required the Reserve Bank to increase interest rates.

"However, this is a slow process. We don't expect the RBNZ to begin hiking the OCR until March 2014, and we don't expect inflation to reach 2% until the end of next year," he said.

"Helpful optics"

JP Morgan Economist Ben Jarman said the result provided some "helpful optics" for the Reserve Bank.

"At least now RBNZ officials will no longer be facing such a dramatic head in the oven, feet in the freezer problem with respect to the activity and housing data vs inflation," Jarman said.

(Updated with more detail, economist reaction, market reaction, charts)

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20 Comments

Apart from petrol, most of the key upward contributions came from non-tradable goods and services (which do not face foreign competition). For tradables, the strong New Zealand dollar helped to dampen the prices of imported goods and services. Read more

 

I see the national pastime of price gouging the locals persists - is it time for legally imposed price controls? 

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No, ug, not price controls....but stop them introducing restrictions on us importing goods from abroad, yes. 

NB Im not sure price controls has ever worked?

Good link. Ignoring veg the rise was 0.3%....The next is petrol, again taking money out of the wallet.

""If petrol and vegetable prices had remained unchanged from the June quarter, the CPI would have risen 0.3 percent,"

That doesnt look like much real inflation to me.    Im not sure 1.4% is deserved...as an indicator of a recovering economy....where are the wage increases?

"highest influence came from cigarette and tobacco prices, which increased 12 percent, reflecting a rise in excise duty in January 2013."

so a one off effect...that wont be there next Q?

hmmm

regards

 

 

 

 

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Totally agree Steven. Once petrol and veges are stripped out what's left? Are the RBNZ going raise rates based on increased living costs? Sometimes I really do wonder where some of these analysts draw their conclusions from. Rate hike in March? Show me the inflation. 

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@Andrewj , you have bumped your head against the Stihl German master plan :  price maximisation ,  information assymetry, a small market , poor and fragmented  competiton , all of which which enables them to manipulate the price differentials .

And I will bet you the STIHL product you are looking at is actually made in their plant in Brazil , not in Germany

Any business knows how far they can push the price of an item before it stops selling , Stihl are masters at this .

The best at this are multinational Pharmaceutical Companies which charge 200% more in Eurpoe for a med than they do in say India , Brazil or South Africa  

The Internet has removed some of the information assymetry , but here in NZ we get shafted constantly in everything we buy from electricity to fish , milk , chicken-meat, tools , machinery  and even GIB Board .

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I checked, these are the same saws both from Germany, even has made in Germany on it.

 The other saws are super cheap, made in the USA but they mean Mexico.

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AJ. Don't buy a Stihl with their new fuel and oiler caps that are sprung-loaded; they are full of tiny parts that fall apart and get lost in the slash - nightmare. The 066 is the only model now with good screw type caps.

Regards, EP   

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Ok, I will check, so if not a professional Stihl what saw do I buy? 066 is a bit big for me, below the 044 they are all made in the 'USA', or should that be assembled. I have two old 044 at home i could just rebuild if it I have to.

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Thanks, I did a search for Stihl fuel cap problems and got 66,000 results. Looks like the ethanol mix is causing some of the problems, had  2.5 million recalls and lots of unhappy people. they say its fixed but doesn't look like it. 

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Tis a shame that such a small change in design should ruin what was a good product; a rebuild of the old 044 should be OK. Otherwise Husqvarna are a great saw too.

Regs, EP

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Yep, thats "normal" for tools here in NZ.

Here typically what I bought in the last 2 years was $1500NZ each v $600US each...

So peeved.........a % up OK, but over 100%?

regards

 

 

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I dont believe a word of it .

So the rampant Kiwi Dollar is masking any imported price pressures ,  but if one considers the cost of living increases in Auckland , then its a different picture .

Administered costs which are not discretionarty and cannot be avoided, such as Local authority rates have gone up as much as 10% for some .

Fuel and Road user charges , and by deduction transport costs have gone up by more than 1%

Electricity prices are all over the place and this " swap - your- provider- and- save" rort is designed in collusion by the players to keep the consumer confused .

House prices ( which dont form part of the  CPI basket ) have increased nearly 15% in Auckland alone.

Medical Prescriptions have gone from $2 to $5 ( that is over 100%) and doctors consultation fees have increased at around 5%.

Building material prices are so out of control we need a forensic investigation into MARKET ABUSE by the two big players, one of whom has sought and been given import  tarriff protection for GIB Board. 

Then we look at imported foodstuffs , and we see some ridiculous price increases , notwithstanding the higher currency , and this smacks of opportunism.  

And finally why on earth are packaged holidays to Fiji included in the CPI index and House prices in Auckland not included ?

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I agree Boatman. We might be able to buy flat screens TV's on the cheap right now (better get in before the dollar weakens) but the cost of living is definitely noticeably rising.

 

Is the CPI even a useful measure any more? As you say how can holidays be included but house prices not? Like crime stats the CPI seems to have been manipulated to produce the desired results. 

 

Don't forget increased insurance costs to add to your list.

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@machiavelli, I forgot about Insurance costs which must have had an impact on CPI , thats another unavoidable cost , which has increased dramatically.

Maybe its left out of the CPI calculation?

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Insurance is a headache, but really like all these overheads when you have spent your limited $s thats it, something else isnt bought unless it drops a long way to compensate.

regards

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Yes and no....as a historic to compare yes it is...bare in mind veg will drop back so CPI in the next 1/4 looks anaemic.

House prices we have been over and over, its not consumed its an investment.

What you are in danger of is cherry picking numbers to support what you feel is right and not what actually is.

The numbers are not fiddled.

regards

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Bernard et.al. have you got some spare development hours at interest.co at the moment. A great number to track would be to supercede the CPI with a real cost of living index. Especially with so many of the numbers online these days. Just need some internet trawling software to keep up to date. Online grocery shopping. Online electronics. Online mortgage rates. Online rental rates. etc. Hey, even online pricing for those package holidays we're all getting into.

Quick survey across a slice of NZ society and how much of each real product or service is being consumed in N.Z. Presto, a useful number that would slay anything stats nz seem to manufacture.

Or even more powerful, a multi tier cost of living index rather than a bundled up CPI number that's supposed to apply to us all.

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'Spare development hours' ? you're kidding, right?

 

Your concept is ok, and many have tried to better the StatsNZ CPI (including a big bank if I recall), but no-one can pull it off. We have looked at it and I can tell you, it leaves you with a begrudging respect for the official series. Even the Govt doesn't have the resources to do their own series more often than quarterly. Doing these things properly is a mammoth undertaking.

 

We do have one of the items on your wish list, grocery shopping, here.

 

The real issue is like-for-like over a sustained period. Basically, without huge investment, its not possible, certainly not in NZ. Would love to be proven wrong though. Suggest you have a try (hint: no one will pay for your work).

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BM. A secular amen to all of that.

Regs, EP

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Yes but if all these go up and you have no more money, you buy less or not of somethings else.

Hence inflation overall is negligable.

regards

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