NZ: Consumer Price Index

Sun Apr 19 17:45:00 CDT 2015

Consensus Actual Previous
Q/Q percent change -0.2% -0.3% -0.2%
Y/Y percent change 0.2% 0.1% 0.8%

First quarter consumer price index (CPI) declined 0.3 percent in the March 2015 quarter, following a 0.2 percent drop in the December 2014 quarter. The last time the CPI declined in two consecutive quarters was in the December 1998 and March 1999 quarters. The fall in the March quarter CPI, which last happened in 2001, was caused by an 11 percent fall in petrol prices. Without petrol, the CPI rose 0.3 percent.

The average price of a litre of 91 octane petrol in the March 2015 quarter was $1.79, compared with $2.00 in the previous quarter. By the end of the March quarter, petrol pump prices were 1.8 percent above the average price for the quarter. If petrol pump prices stay at their 17 April level for the remainder of the June 2015 quarter, petrol will have an upward contribution to the CPI for the June quarter.

Cigarette and tobacco prices rose 12 percent in the latest quarter following an 11 percent rise in excise duty in January. The CPI less cigarettes & tobacco was down 0.7 percent. Housing rentals rose 0.8 percent, with Canterbury up 1.2 percent and Auckland up 0.8 percent. Prices for newly built houses excluding land rose 0.8 percent nationally, with Auckland up 0.7 percent.

On the year, the CPI increased 0.1 percent -- the smallest annual movement since the September 1999 quarter when prices decreased 0.5 percent over the year. The prices of tradable goods & services (which face foreign competition) decreased 2.8 percent in the year, with lower prices for petrol (down 15 percent) and for audio-visual & computing equipment (down 13 percent). Tradable prices are now at their lowest level since the June 2009 quarter, despite petrol prices now being 12 percent higher than they were in that quarter.

Non-tradable goods & services increased 2.3 percent, the lowest annual increase since the September 2012 quarter. The main contributor was cigarettes & tobacco prices (up 14 percent), influenced by the increase in excise duty in January 2015. Housing & household utility prices were up 3.0 percent in the year, with higher prices for newly built houses excluding land (up 5.0 percent), housing rentals (up 2.3 percent) and electricity (up 3.6 percent). Excluding cigarettes and tobacco, the annual CPI decreased 0.2 percent. Excluding only petrol, the CPI increased 1.0 percent over the year.

The consumer price index (CPI) measures the changing price of a fixed basket of goods and services purchased by New Zealand households. The selection and relative importance of the goods and services in the CPI basket represents the overall expenditure pattern of New Zealand households.

The aim of the CPI is to measure price changes of the same sample of products at each outlet over time. When there is a change in the size or quality of any of the goods or services in the basket, an adjustment is made to ensure that the price change shown in the CPI is not affected by the change in size or quality.

The CPI represents $88.9 billion spent on goods and services by New Zealand households, at June 2011 quarter prices. This is based on information from the 2009/10 Household Economic Survey and other sources. The CPI has an index reference period of the June 2006 quarter equal to 1000.

A price index measures the change in price between time periods for a given set of goods and services. It summarizes a set of prices for a variety of goods and services collected from a number of outlets. The consumer price index is the most widely followed indicator of inflation. An investor who understands how inflation influences the markets will benefit over those investors that do not understand the impact. Inflation is an increase in the overall prices of goods and services. The relationship between inflation and interest rates is the key to understanding how indicators such as the CPI influence the markets- and your investments. Inflation (along with various risks) basically explains how interest rates are set on everything from your mortgage and auto loans to Treasury bills, notes and bonds. As the rate of inflation changes and as expectations on inflation change, the markets adjust interest rates. The effect ripples across stocks, bonds, commodities, and your portfolio, often in a dramatic fashion. By tracking inflation, whether high or low, rising or falling, investors can anticipate how different types of investments will perform. Over the long run, the bond market will rally (fall) when increases in the CPI are small (large). The equity market rallies with the bond market because low inflation promises low interest rates and is good for profits.

The CPI is used to help set monetary policy and for monitoring economic performance. It is used by the government to adjust New Zealand Superannuation and unemployment benefit payments once a year, to help ensure that these payments maintain their purchasing power. Employers and employees use the CPI in wage negotiations.