Statistics NZ reports CPI rose 0.2% in March qtr; up 0.4% from yr ago; broadly in line with forecasts; Petrol fell 7.7%; Cigarettes up 9.4%; Auckland rents up 3.2% vs yr ago

Statistics NZ reports CPI rose 0.2% in March qtr; up 0.4% from yr ago; broadly in line with forecasts; Petrol fell 7.7%; Cigarettes up 9.4%; Auckland rents up 3.2% vs yr ago

By Bernard Hickey

Inflation was broadly in line with expectations in the March quarter, but economists said it remained far enough below the Reserve Bank's target band to leave open the possibility of another rate cut next Thursday.

The Consumer Price Index (CPI) rose 0.2% in the March quarter and was up 0.4% from a year ago as a 7.7% fall in petrol prices was almost enough to offset the effects of higher tobacco tax and a rise in rents, house building costs and council rates.

The quarterly inflation was slightly above the consensus forecast from economists for a 0.1% rise, but was in line with the Reserve Bank’s forecast and broader expectations for annual inflation of around 0.4%. This was the seventh consecutive quarter where annual inflation was at or below the bottom end of the Reserve Bank’s 1-3% inflation target. Annual inflation has been below the 2% midpoint specified in the Reserve Bank's Policy Targets Agreement for four and a half years.

A 10% rise in cigarette and tobacco prices generated 0.25 percentage points of inflation in the quarter, which meant the CPI would have fallen slightly without the tax hike.

The strongest inflation came from rents and the cost of building new houses, along with council rates.

Auckland rents rose 0.7% in the March quarter from the December quarter and were up 3.2% from the same quarter a year ago, which was almost twice as fast as the rental inflation of 1.7% of New Zealand excluding Auckland.

The cost of new house building in Auckland, which excludes land costs, rose 1.0% in the quarter and was up 7.6% from the same quarter a year ago. This was more than double the 3.5% annual increase in house building costs for the rest of New Zealand.

Property rates rose 0.1% in the quarter and were up 5.5% from the same quarter a year ago.

Tradable prices, which measures prices of goods and services exposed to international competition, fell 0.9% in the quarter and were down 1.2% from the same quarter a year ago. The annual deflation was more than the 1.1% forecast by the Reserve Bank.

Non-tradable prices rose 1.0% for the quarter and were up 1.6% from the same quarter a year ago. The annual non-tradable figure was above the Reserve Bank's forecast on March 10 for inflation of 1.4%.

Economist and market reaction

Westpac's Dominick Stephens said the result was a touch above his 0.1% forecast for the quarter and detracts from the case for a rate cut on April 28.

"We are finally starting to see some pass-through from last year's exchange rate decline into higher prices for certain tradable goods," Stephens said.

The New Zealand dollar rose from 68.8 USc to 69.1 USc after the result, while the two year swap rate rose two basis points.

ANZ Senior Economist Mark Smith said the moves in tradable and non-tradable prices were broadly offsetting.

"While the data certainly doesn’t rule out the RBNZ cutting the OCR again next week, we don’t see it as the smoking gun that the market was hoping it would be," Smith said.

"We continue to see the OCR going lower, but we are wary of the trade-offs this will bring."

ASB Chief Economist Nick Tuffley said the Reserve Bank's decision next Thursday remained a close call.

"The on-expectation inflation result suggests the RBNZ may see little urgency to deliver the next rate cut at the April OCR review, and may prefer to wait until the June MPS," Tuffley said.

"In saying this, given the persistent strength in the TWI, we cannot entirely discount an April cut as the decision will remain a close call."

BNZ and Kiwibank forecast the Reserve Bank would cut the OCR by a further 25 basis points on April 28 to 2.0%, while others said the central bank would wait until the next full Monetary Policy Statement on June 9.

Most think the Reserve Bank will cut the OCR by another 50 basis points to 1.75% this year.

Political reaction

Finance Minister Bill English welcomed the low inflation figure, saying average wages were rising faster than the cost of living to help households get ahead.

"We are in the unusual situation of having solid economic growth, more jobs and rising wages at the same time as very low interest rates and inflation," English said.

"Households with mortgages have the double benefit of low cost of living rises and lower mortgage servicing costs, which will be particularly welcome in regions with increasing house prices," he said.

"Overall, New Zealand is doing well and New Zealanders are reaping the benefit of a growing economy."

Green Finance Spokeswoman Julie Anne Genter said lower petrol prices disguised the fact that rents in Auckland were rising much faster than wages and other prices.

“If your rent is going up five percent but you’re one of the almost 50 percent of New Zealanders who didn’t get a pay rise last year, overall low inflation isn’t going to help you," Genter said.

"We urgently need stronger action to fix the housing crisis including a Government-led home-building programme, quality mid-rise apartments around major transport routes, and measures to stop speculation like a comprehensive capital gains tax (excluding the family home) and restrictions on overseas buyers,” she said.

(Updated with economist, market and political reaction, detail)

Consumer price index

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Take away the cigarettes and tobacco. CPI flatlined for the year. How many people buy 10 dollar cauliflowers and how many are affected by cigarette prices.

It is just an index and a misleading one for many purposes. The fact that rates are up 5.5% is not adequately included in the overall index. It gets counted in with other services which make up about 2% of the overall index. Hardly reflective of my reality.

My personal PI is probably up over 5% per year, with wellington rates up another 3.8% and Regional Council rates up 7.6%. And my medical expenses are up more than 30%

Try getting older on a fixed and declining income and it ain't much fun with the RBNZ and the politicians encouraging more property speculation as the only viable savings alternative at present.

Yes, CPI inflation is easily manipulated for purposes often not declared. Read More

Maybe you need a bigger tin foil hat then, or better tin foil body armour?

It isnt designed for you personally, but If you dont like the CPI, invent your own like shadowstats who live in la la land. The thing is its meant to track ALL and not as a spot indicating the health of an economy. This includes the most dangerous aspect, deflation.

"probably" says it exactly, you simply do not know so are complaining on a guess. My medical expenses are up a fat zero. I assume you have a private policy? most people do not.

Year before last my broadband cost went from over $200 a month (variable) to a fixed $140 a month unlimited, so $70 a month+ saving. Mobile phone cost dropped from a $40 a month plan to $29 a month plan for x 2 the talk and data. So savings of $80 a month more than compensated for the rates increase.

If you dont smoke your CPI didnt get impacted by tax etc etc.

the last review was in 2011,
and they measure rents and purchase of NEW houses, they do not measure existing house purchase.
apart from that they measure everything you could think of, but its the weightings that are important
how many of us buy wetsuits o tennis racquet or bird seed

So deflation continues with tradables down 0.9%.

Tobacco inflation means that the poorest 50% are getting poorer. Rent inflation is continuing as expected. Looks like wages will stay flat or go down which peoples living costs are increasing, there's no break in the trend that a lot of people are worse off year after year.

Yes and that is the worry for me. Indeed from the article if it wasnt for the tax hike on tobacco it would be negligible.

All eyes on the RBNZ for next week's decision. NZD is holding firm at 69. Inflation going nowhere. House prices up.

Very tough call.

At least they have help from the govt (lol)

Wheeler seems to be following a 0%+ inflation policy. If CPI is 0% or more then there's no rate cut. With the OPEC agreement falling through there will probably be a mid year rate cut to keep us out of official deflation.

It would be great if Bill English's next speech was to explain how the CPI is composed and why property bubbles can rage while not appearing to impact headline inflation. The Japanese must be in awe of us.

Maybe because he assumes most ppl have a clue? ie What the CPI is composed of is well documented and why housing isnt in the CPI also (its an investment).

But I'm sure inflation is just around the corner according to the RBNZ, just as it has been for the last 7 quarters.

The biggest driver of inflation is apparently the expectation of inflation, so if most dont expect inflation, it doesn't happen.

surprised about the fuel, as it has been slowly rising over the last 3 months

Haven't seen that much difference since Christmas. Hovering in the low 1.60 range in most cases. Of course there are plenty of places changing more - 1.77 seems pretty common.

This is in Tauranga btw.


When you have runaway inflation such as this, the Bank of England has a responsibility to quash it, usually by putting up interest rates. But – and here is the great sleight of hand – the Bank has seen fit not to include house prices in its measures of inflation. So, throughout the 90s and 00s, they could then “prove” inflation was low or moderate and interest rates meandered lower. Meanwhile, more and more mortgages were issued, and so more and more money was created, and it pushed up prices. The government didn’t mind.


The standard solution is: “we need to build more”, but this is not a simple supply-and-demand issue. Between 1997 and 2007 the housing stock grew by 10%, but the population only grew by 5%. If house prices were a function of supply and demand, they should have fallen slightly over this period. They didn’t. They rose by more than 300%.

The cause of house price rises is the unrestrained supply of something else: money. Mortgage lending over the same period went up by 370%, thinktank Positive Money’s research shows. It was newly created debt that pushed up prices in a decade of extraordinarily loose lending, which gave birth to a national obsession. Houses were no longer places to live, but financial assets. Property owners became immensely wealthy without actually doing anything. And this great, unearned wealth saw the rise of a new rentier class: the buy-to-let landlord.

Seems a common issue...... around the world

It's so obvious eh, the BS these guys are selling and their best efforts to omit the real factors that anyone can see if paying attention. But hey, they have the majority of wage slaves fooled and that is all that matters to them to keep this game going. Just crazy

.2% CPI, pretty high rate really given global conditions.
Maybe justification for an interest rate hike - can't have inflation running away on us!

Sarcasm is the truest form of wit

NIRP is the new ZIRP. Get with the program Graeme.

I'm really surprised rent increases are not more than 3.2%!!!!
Is it not a bit unbalanced to not include property prices as a measure for inflation?
After all we are a 'property owning democracy' so surely the cost of (buying) property should be factored in?

Have your wages increased 3.2% this year? That's most probably the main reason. House prices can/are going up & up but wages are not. The law of diminishing returns .

To put it another way, what's stopping landlords in auckland for example putting rents up to $2000 a week?

Interesting they include rents in the inflation figure and also the cost of building houses but they don't include the cost of buying a house! Add that to the inflation figure and you would see interest rate rises not falls. And more stable financial system. But instead it a fudging of the true inflation which the average worker experiences.

Can someone explain why house price inflation is not covered in the CPI?
I would have thought that given houses cost so much, an increase in house prices, especially if significant, is highly inflationary?
I mean if carrots go from $2 a bag to $2.10 a bag it doesn't really mean much does it?
But if house prices go from $700K to $770K then that really means something....

Do your carrots qualify for capital gain?. Did you have to go into debt to buy your carrots? That's their basic logic for removing it from the CPI, (the cancellation effect) and I believe the Shipley government removed this essential figure from the CPI back in the 90's. Correct me if I'm wrong.

Your'e entirely correct in this concern however as the cost of shelter (whether a rental or home buyer) is the biggest cost of living factor we all have to deal with. And as house price inflation is basically being funded by the introduction of huge amounts of fresh funny money being injected into our monetary system (in the form of debt for one person and cg for another (maybe) then having such inflationary figures added would reflect a far more accurate CPI figure. Inflation would then be say around 8%, thus interest rates and the OCR would need to reflect that figure. And savers and depositors would get a better rate of interest also (if forced to by banking regulators, currently they decide what a depositor gets and its getting less by the day)

What do you think mortgages would be right now if they did this? This is why the RBNZ etc are stuck in their own catch 22. To produce perpetual mortgage and loan creation they must now continuously lower the interest rates to encourage the debt take up while trying to protect the bubble with higher LVR's. Sadly, all of this leads to the same result. Unsustainable debt thus another financial collapse. Just need one wee trigger event to kick it off, like large numbers of people being laid off say, commodity price weakening (dairy) ...

So to my non-economist eyes it just looks like another big con

BINGO! It's essentially a government and bank sponsored global ponzi scheme within an entirely fraudulent monetary system called "fractional reserve banking" along with 'fiat currency' at its heart. "Fiat" meaning "back by nothing', intrinsically worthless tender.

Watch this Fritz:

Thanks Justice I will watch that video. It all really does sound more and more like one massive rort.

Youre welcome. After watching that vid, watch this one : The history of money

Very interesting stuff

Total and utter stupidity that a households biggest expense is completely ignored by economists.
The system is BROKEN in more ways than just this though.
We need a Bernie Sanders in NZ.
Bernard Hickey perhaps?

Another question...why aren't there riots on the streets? Are young people not getting agitated by this nonsense and lack of meaningful policy action? Do they not realise how much their future is getting kicked in the ass????

define "young people". pre 20's? 20-30?

Probably because they know damn well they won't get any support from older generations until they too get hit by this. And a riot is the last resort also, no one wants that. civil disobedience however...
Let's see how the next election goes Fritz and gauge it from there.

It is interesting that from what I can tell, young people are not so affected by higher house prices.
Many people complaining seem to be in the 30-40 year old age bracket who "missed the boat" and now stand little chance of buying a house in the area that they want now that they have 2 or 3 kids to feed.

Many people in my age group (20 somethings), are happy to jump on the property band wagon, and they are adapting their expectations of where they live quite easily.
I just look at the small Waikato towns like Huntly, Ngaruawahia or Morrinsville, all filled with 20 somethings buying fairly cheap property and commuting to Auckland or Hamilton.

Almost every one of my young friends owns a house already, and a few own rentals as well.
Not in Auckland, but the same basic principals apply in the smaller towns and good gains are being made recently with the Auckland spill over hitting the regions.

Interesting observation Just a farmer. Almost all my young nieces and nephews bought houses in the regions while in their twenties.
(they are married too, which is not related to your comment but I think is significant)

It's great that you've made choices that you're happy with and have managed to get houses. Be aware that you and your friends are not the majority, and there's a lot of people having difficulty saving enough to keep up with increasing house prices. However, I don't want to diminish what you and your friends are achieving. If you've got a house, job and are happy with your lifestyle I think that's great (especially if you got good prices for your houses).


Afraid to lose their jobs or get blacklisted.

Its easier to leave the country than try and herd sheep.

Unfortunately I can only see civil disobedience if the whole ponzi collapses, and takes the NZ economy with it, bringing 12% plus unemployment and very high youth unemployment...
not a far fetched possibility, IMHO

Yeah, well that's happen before after the 1987 crash. In the early nineties this scenario took place but it took almost 4 years to happen from 87-91. Massive protests concerning the Employment Contracts Act....etc Social Welfare reforms...horrible times economically

Some people say a man is made outta mud
A poor man's made outta muscle and blood
Muscle and blood and skin and bones
A mind that's a-weak and a back that's strong

You load sixteen tons, what do you get
Another day older and deeper in debt
Saint Peter don't you call me 'cause I can't go
I owe my soul to the company store

I was born one mornin' when the sun didn't shine
I picked up my shovel and I walked to the mine
I loaded sixteen tons of number nine coal
And the straw boss said "Well, a-bless my soul"

You load sixteen tons, what do you get
Another day older and deeper in debt
Saint Peter don't you call me 'cause I can't go
I owe my soul to the company store

I was born one mornin', it was drizzlin' rain
Fightin' and trouble are my middle name
I was raised in the canebrake by an ol' mama lion
Cain't no-a high-toned woman make me walk the line

You load sixteen tons, what do you get
Another day older and deeper in debt
Saint Peter don't you call me 'cause I can't go
I owe my soul to the company store

If you see me comin', better step aside
A lotta men didn't, a lotta men died
One fist of iron, the other of steel
If the right one don't a-get you
Then the left one will

You load sixteen tons, what do you get
Another day older and deeper in debt
Saint Peter don't you call me 'cause I can't go
I owe my soul to the company store

Its a great song.
Nz''s are not volatile like the French farmers or the Chinese steelworkers.
But they have a sense of fair play, as Muldoon found out when they trashed a rugby match.