By David Hargreaves
Inflation was higher than both the Reserve Bank and 'the market' expected in the December quarter, with the Consumers Price Index climbing by 0.4%.
This was against overall expectations of a rise of 0.3% and an RBNZ pick of just 0.2%.
On a seasonally adjusted basis, quarterly CPI rose by 0.7% quarter-on-quarter, which is the largest quarterly gain since September 2013.
In reaction, the already buoyant New Zealand dollar pushed up by about a quarter of a cent against the American currency, taking it to around US73C.
Higher fuel prices and housing-related costs as expected were big contributors, but the broad-based nature of price gains has surprised economists.
On those housing costs, housing-related prices were up 3.3% in the December 2016 year.
Prices for newly built houses excluding land rose by 6.5%, which was the highest increase since the middle of the last housing boom in 2005. Housing rentals increased 2%.
ANZ senior economist Philip Borkin, talking about the overall inflation figures, said ANZ analysis showed that 43% of the CPI 'basket' measured by Statistics New Zealand recorded annual price growth above 2%, which is the highest proportion in close to five years.
"We expect this theme of stronger and broader underlying pressures to develop further over the course of 2017. It is all consistent with an economy that is not only growing strongly, but increasingly hitting capacity and resource pressures," Borkin said.
The December figures took the annual inflation rate to 1.3%, again higher than the overall market pick of about 1.2% and above the RBNZ's forecast of 1.1%.
This means the inflation rate has jumped back into the RBNZ's 1% to 3% targeted band for the first time in two years.
It also means that the official interest rate cut made by the RBNZ in November, taking the Official Cash Rate down to a record low of 1.75% is most certainly the last cut for the foreseeable future.
Indeed today's figure will likely increase market speculation that an upward move in the OCR may now occur as soon as later this year, though most economists still think that's unlikely.
The 0.4% December quarter CPI rise follows a 0.3% rise in the September 2016 quarter.
Statistics New Zealand's prices senior manager Jason Attewell said in the December quarter there were higher prices for petrol, air fares, and new house builds - partly offset by lower prices for food and furniture.
Petrol prices made the largest upward contribution for the quarter, up 4.1%. The average price of a litre of 91 octane petrol in the December 2016 quarter was $1.82, up from $1.75 in the September quarter.
Food prices fell 1.2% in the latest quarter, with seasonally lower fruit and vegetable prices being partly offset by higher prices for dairy products.
In highlighting that the latest figures meant that it was the first time in over two years that annual price increases for household purchases have been over 1%, Attewell said household price inflation was up from a historical low of 0.1% for the December 2015 year.
He said prices for tradable goods and services were 0.1% lower in the year to December 2016. Despite higher quarterly prices, petrol and international airfares were cheaper than a year ago. Non-tradable goods and services showed a 2.4% increase, influenced by housing-related price increases.
Attewell said housing-related prices in Auckland increased more than the national average, with new houses up 8.2% and rents up 3.2% from a year earlier.
ASB chief economist Nick Tuffley said ASB economists had expected any inflation over the fourth quarter to have been driven largely by the construction and tourism sectors as well as an increase in petrol prices.
"However, the stronger than expected lift in inflation was more broad based than we had anticipated.
"On the tradable side of the equation, higher petrol prices were a boost to inflation as expected. But higher clothing and footwear prices (up 1% and 1.9% respectively) on less discounting activity as well as a 1.9% qoq increase in vehicle purchases and a 11.2% qoq increase in international airfares also boosted the tradable inflation picture.
"The rise in clothing and footwear is surprising given the Q4 [Quarterly Survey of Business Opinion] results suggesting the NZD was holding down retail prices. However, given the ongoing strength in the [New Zealand dollar], we expect further downward pressure on these components going forward."
Tuffley said ASB expected the RBNZ will wait for inflation to return to comfortably within the target band before any rate hikes are considered.
"We continue to expect the RBNZ to leave the OCR on hold for the foreseeable future. Further OCR cuts are well off the table, barring some major development. But OCR hikes this year, as priced into wholesale interest rates, still seem premature."
Consumer Price Inflation by Group
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28 Comments
0.7% , thats hardly inflation .
This was expected , Petrol has gone up and that feeds the supply chain , so this is not likely to be sustained inflation because the oil price is not likely to go up much more .
Especially when the OPEC members start cheating on each other and the deal collapses
You know , its funny we get lies , statistics , and alternative facts or at least alternative interpretations of the the facts .
For example ..." higher clothing and footwear prices " are quoted , and then its qualified with " on less discounting activity "
So did prices go up .......... no they did not , but there was less discounting which is easily explained .
You see it was Christmas for goodness sake, and prices are loaded over Christmas.
Apart from some Fake Discounting and some alternative pricing strategies ....who discounts anything over Christmas ?
"Apart from some Fake Discounting and some alternative pricing strategies ....who discounts anything over Christmas?"
Ahh like every retail store on boxing day, extending to the new year...
A fault in your understanding is how the nz (as in most developed countries) CPI is analysed. Because they use a hedonic method to construct the index, nominal prices do not have to change at all for there to be inflation(deflation). What really matters is the fundamental characteristics of the good and how they change relative to price. It's essential to ensure there is no bias for good selection, new products, etc.
This also explains away the majority of rants you have on inflation, weekly.
Boxing day "sales " are fake sales , there is never real discounting , and we have evidence both anecdotal and emperical , there is both academic research showing this ( Massey University).
The real sales are towards the end of January.
As to my so called "rants" about inflation , they are no such thing , I merely point out that as a consumer that keeps records of expenses , I am not seeing any inflation in prices , ( until last week when Petrol and diesel went up )
Interesting.
And to think we go to all that effort with the Fair Trading Act if retailers are openly, en masse, flouting the provisions of it pertaining to the advertising of only genuine deals..
You should turn over the research to the Commerce Commission; they would be very interested..
RE; your rants.
Exactly my point. You do not have the capacity to accurately model your purchases to eliminate product biases. Hence, your personal perception of you cost of living will always be biased/incorrect.
If you're worried about seasonal effects, you can either look at the year-to-year data, as Christmas happened at the same time last year (1.3% inflation over the year), or you can look at the seasonally adjusted quarterly data, quoted in the article at 0.7% from the last quarter.
maybe the CPI is outdated as a mode of tracking what peoples spend is
http://nypost.com/2013/07/23/ex-stats-insider-time-to-trash-outdated-cp…
Oh dear.
"Non-tradable goods and services showed a 2.4% increase, prices for tradable goods and services were 0.1% lower in the year to December 2016"
While still socialists, the new movement understand why the once affluent middle class of the western world are upset. They cannot make ends meet as they find themselves in a situation whereby the central bank target a domestic price level in a world where prices are set on global markets. To achieve a two per cent CPI target when import prices are falling due to the “China-factor”, it is given that non-tradable prices must grow far faster than two per cent. From this we can conclude that essentials, such as housing/rent, education, food and medical expenses will grow far faster than then aggregate CPI if the two per cent target is to be reached. Data from the Bureau of Labor Statistics substantiates this view.
While it is certainly nice to buy a new flat-screen TV imported from Asia on the cheap, it is not helping if housing, food and medical expenses already lay claim to all of household income. If these people dare vent their frustration, the urban elites call them racist bigots and effectively shut them down. Until 2008 Flyover America could effectively be silenced by giving them access to cheap and plentiful amounts of debt, which helped paper over the lack of real household income growth. When the credit channel broke down at peak debt, the harsh reality made itself felt.
http://bawerk.net/2016/11/11/toward-a-new-world-order-part-ii/
Andrewj - exactly. The conclusion is peak debt which means peak industrialization. Various people seem to be coming to the same conclusion.
https://www.youtube.com/watch?v=TFyTSiCXWEE
https://ourfiniteworld.com/2017/01/10/2017-the-year-when-the-world-econ…
https://www.bloomberg.com/news/articles/2017-01-10/oil-discoveries-seen…
https://surplusenergyeconomics.wordpress.com/2017/01/09/85-perfect-stor…
http://www.scotsman.com/news/politics/len-mccluskey-calls-for-bailout-o…
Just on the technical point, you will be wrong about the "margin of error" for the CPI result. It won't be anything near 1%, and likely to be on tenth of that although StatisticsNZ don't actually disclose it. The sample size for this "survey" is actually enormous (which is why they only do it quarterly - to do it more often costs too much).
See this page.
"Sample size
We collected about 100,000 prices from about 2,800 retail outlets and 2,300 other businesses and landlords."
No. It is just too small to be calculated. You can make your own estimate here.
If you think there are 500,000 price items in New Zealand, and Stats NZ samples 100,00 of them (which they do), and you want a 99% level of confidence in their sample, you get a margin of error of .... 0%.
If you raise the population to 1 mln price items (unlikely), the same 99% confidence level gives a margin of error of ... still 0%.
A low margin of error is certainly not suspect when the sample size is so large. It is just too small to report. StatsNZ round and report suff to one decimal place. It is less than that. For all practical purposes it is zero - even though technically it won't actually be zero.
To jump to a conclusion about it being unreliable shows a poor understanding of the math involved, or trying to fit a narative to a conclusion you already have.
Need more about how to work it out? Try this.
For those who think the property market will explode again, here is the latest bad news:
7 properties were offered yesterday at Barfoot & Thompson’s first residential auction of the year, 4 of them cross-leased and one in a body corporate. 3 sold, 3 attracted no bid and one was passed in after bidding
A 65% failure rate..
Move on, nothing here to look at.
What I am saying is that there is a chance that the fourth property sold and will be counted as part of the auction. We need to see the results published before drawing a conclusion. I am assuming BigDaddy doesn't know the final result of the auction. BigDaddy's 65% failure statement is "fake news" regardless but it could well be 57% success if we don't know the result yet. If so it would be a good result in my opinion.
Again, I reiterate, I am not doing this to be contrary, just want the accurate alternative facts.
There wont be any property explosions anytime soon but who says there wont be latter on, if you look at the trend over the past few years there is a pattern to the market, things become quiet every 1-2 years for a period of time.
Seems that a lot of people are under the impression that because property has sky rocketed and has become so unfordable its going to suddenly explode and prices will dramatically fall, and this slow down has given people that hope. For the ones that already own a property price gain or falls would make no difference, when ever you sell up you would have to pay equivalent to what you sold for, and the ones that are looking to buy, buy when ever you can afford to, don't wait around.
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