NZ: Consumer Price Index

Mon Jul 17 17:45:00 CDT 2017

Consensus Actual Previous
Q/Q percent change 0.2% 0.0% 1.0%
Y/Y percent change 1.9% 1.7% 2.2%

New Zealand's consumer price index rose 1.7 percent on the year in the three months to June, down from 2.2 percent in the three months to March and falling short of the consensus forecast of 1.9 percent. Headline inflation has now been within the Reserve Bank of New Zealand's target range of 1.0 percent to 3.0 percent for the three consecutive quarters after eight consecutive quarters below this range. The consumer price index was flat on the quarter in original terms (down 0.1 percent in seasonally adjusted terms), compared with an increase of 1.0 percent in the three months to March and the consensus forecast of 0.2 percent.

The decline in headline inflation last quarter reflects a weaker increase in transport costs, up 1.2 percent in the three months to June compared with an increase of 3.5 percent in the three months to March. This was driven by a smaller increase in petrol prices and lower vehicle relicensing fees. Costs related to housing and household utilities also rose at a slightly pace, down from 3.3 percent to 3.1 percent. In quarter-on-quarter terms, higher prices for housing and household utilities and food were offset by lower prices for transport and communication.

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) weakened from 1.6 percent in the three months to March to 0.9 percent in the three months to June. 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) eased slightly from 2.5 percent to 2.4 percent.

At the RBNZ's last policy meeting, held mid-May, officials noted that the increase in headline inflation seen in the three months to March was mainly due to higher petrol and food prices. Officials argued that these effects would be temporary and that there would likely be some variability in headline inflation over the year ahead. The drop in headline inflation in the three months to June is broadly in line with this view and is also consistent with the RBNZ's forecast for headline inflation to remain close to the mid-point of its target range over the medium-term. Officials at the May meeting stated that policy will remain accommodative for a "considerable period" suggesting there is little chance of a change in policy settings at the next policy meeting scheduled for August 10.

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.