NZ: Consumer Price Index

October 17, 2016 04:45 CDT

Consensus Actual Previous
Q/Q percent change 0.0% 0.2% 0.4%
Y/Y percent change 0.1% 0.2% 0.4%

Annual consumer inflation in New Zealand remained subdued and below the official target range in the three months to September, with the consumer price index increasing by 0.2 percent year-on-year, down from an increase of 0.4 percent in the three months to June. This was slightly above the consensus forecast of 0.1 percent. Quarterly growth in the index was also low at 0.2 percent, compared with an increase of 0.4 percent in the three months to June and the consensus forecast for zero change.

Low annual headline inflation was mainly driven by lower petrol prices (down 11.0 percent) and other categories of consumer spending directly impacted by global oil prices, including international travel and other private transport services. This was largely offset by solid increases in housing-related items, including prices for newly built houses (excluding land) (up 6.3 percent), housing rentals (up 2.1 percent) and local authority charges (up 3.4 percent). The increase in the index in the quarter was also mainly driven by housing costs and offset by lower transport costs.

Annual inflation for tradable goods and services (that is, those that are imported or compete with foreign goods and are impacted by foreign price changes and exchange rates) fell from minus 1.5 percent in the three months to June to minus 2.1 percent in the three months to September. Annual inflation for non-tradable goods and services (that is, those not subject to foreign competition, for which prices are primarily determined by domestic demand and supply conditions) rose from 1.8 percent to 2.1 percent.

Annual CPI inflation in New Zealand has now been below the Reserve Bank of New Zealand's target range of 1.0 percent to 3.0 percent for eight consecutive quarters. Officials have cut their main policy rate from 3.5 percent to 2.0 percent over this period, including a cut of 25 basis points at their August policy meeting. The statement published after their last policy meeting noted that headline inflation was expected to fall in the three months to September, as today's data confirm, but the rate is then expected to increase going forward in response to policy stimulus, the strength of the domestic economy, reduced drag from tradables inflation and rising non-tradables inflation.

Despite this forecast for inflation to move higher in the near-term, the RBNZ also noted that its current projections and assumptions indicate that further policy easing will be required to ensure that future inflation settles near the middle of the target range. In particular, officials have noted the impact of a strong currency in keeping tradable inflation in negative territory and although the currency has weakened in recent weeks, it remains well above levels officials would like to see. This suggests that another rate cut at the next policy meeting scheduled for November remains likely.

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.