The Consumers Price Index rose 0.8% in the March quarter, giving annual inflation of 1.5%, according to Statistics New Zealand.
The result is dead in line with market forecasts, though lower than the Reserve Bank expected, with its forecast of a 1% rise in the March quarter and 1.7% annual inflation. Remember, the RBNZ aims for annual inflation within 1% to 3%, with an explicit target of 2%.
In the December 2020 quarter, the CPI rose 0.5%, giving an annual inflation rate of 1.4%.
As expected, higher fuel and transport costs led the increases in the March quarter, while housing related costs also contributed strongly.
The impact of disruption to the supply of goods due to the global pandemic was also apparent, although perhaps not to the extent that might have been expected.
Kiwibank chief economist Jarrod Kerr said there was nothing in the inflation report that the RBNZ would be surprised by, or even react to.
"They need to see how inflation is tracking this time next year, after the supply disruptions have washed through. Bottlenecks at our ports will eventually be addressed," Kerr said.
"Strip away the volatility and core inflation remains subdued, easing from 2.1% to 2.0%. The economy is not yet strong enough to generate a sustained lift in prices. When setting monetary policy, central banks look to the medium term, and try to look through temporary shocks and disruption."
Market reaction to the figures was muted.
Stats NZ said "prices for getting around" rose, with transport prices rising 3.9% in the quarter, the biggest quarterly rise in over a decade.
Petrol prices rose 7.2%, the biggest quarterly rise since June 2015. Despite this, however, petrol prices are 3.8% lower than they were a year ago, Stats NZ's prices senior manager Aaron Beck said.
The price of buying a car also rose over the quarter. Used car prices rose 4.4%, following a similar 4.6% rise in the December 2020 quarter. Annually it is the highest annual increase in used car prices since 2012.
“There have been many delays with imports of goods into New Zealand. This may have resulted in fewer cars available for sale,” Beck said.
And housing costs rose in line with the fast rising housing market. (Remember buying and selling of existing houses is not included in the CPI.)
Rent prices rose 1.0% in the March quarter, the biggest quarterly increase in a year. Annual rent prices increased 2.7%.
The cost of building a new house also rose in the March quarter, up 1.2%.
“Reported shortages of many building products such as timber and house fittings and furnishings, as well as higher labour costs likely contributed to the movement,” Beck said.
The price of building a new home increased 3.5% in the year to March 2021, the biggest annual increase since June 2019. However, this is less than half of what it was when it peaked at almost 9% in 2004.
Tobacco prices have been one of the main drivers of non-tradable inflation over recent years. For four years, the annual tobacco excise tax increase was 10% in addition to the CPI (all groups less credit services for the year to 30 September). However, the large annual excise increases have come to an end, and so the annual increase on 1 January 2021 was only from the all groups CPI less credit services for the year to 30 September 2020.
Some highlights of the March quarter figures included:
- Transport rose 3.9%, influenced by higher prices for private transport supplies and services (up 4.9%) and purchase of vehicles (up 2.6%).
- Housing and household utilities rose 0.9%, influenced by actual rentals for housing (up 1.0%) and home ownership (1.2%).
- Alcoholic beverages and tobacco rose 1.6%, influenced by higher prices for cigarettes and tobacco (up 2.7%).
- Food rose 0.6%, influenced by grocery food (up 0.9%) and restaurant meals and ready to eat foods (up 0.9%).