NZ prices fall 0.5% in Dec qtr; green light for big OCR cut (update 2)

NZ prices fall 0.5% in Dec qtr; green light for big OCR cut (update 2)
New Zealand's annual inflation rate in the December quarter of 2008 was 3.4% (from December 2007). This was down from the September quarter annual rate of 5.1%. Quarter on quarter inflation fell 0.5%, compared to the market consensus of -0.4%. (Update two to include tradeables, non-tradeables and food inflation figures.) The quarterly decrease of -0.5% was the biggest quarterly decrease in New Zealand's CPI since the December 1998 quarter, when it fell 0.8%. The Reserve Bank of New Zealand had forecast an annual inflation rate (December quarter) of 3.6% in its December monetary policy statement, and -0.3% for the quarter. The latest figures will give it more room to make a big OCR cut next Thursday. The market consensus before the latest CPI data was for a 100 basis point cut to 4%. The New Zealand dollar fell sharply to 53.6 USc on the news. A big fall in petrol prices led to tradeables inflation to fall to 2.3% year-on-year, compared with 6.3% in the September quarter. Transport prices fell 7.6% from the September quarter, Statistics New Zealand said. Tradeables inflation fell 2.1% from the September quarter. Non-tradeables inflation still remains a big problem for the Reserve Bank, rising to 4.3% year-on-year, compared to 4.1% in the September quarter. It recorded a 0.8% rise quarter-on-quarter. Electricity prices rose 2% over the quarter, and 7.7% over the year. In another release, Stats NZ said that food prices rose 9.1% in December 2008 from a year before, but fell 0.2% from November 2008. This story will be updated throughout the day with more in depth analysis and market reactions.

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