NZ: Consumer Price Index

Mon Oct 16 16:45:00 CDT 2017

Consensus Actual Previous
Q/Q percent change 0.4% 0.5% 0.0%
Y/Y percent change 1.8% 1.9% 1.7%

New Zealand's consumer price index rose 1.9 percent on the year in the three months to September, up from 1.7 percent in the three months to June and just above the consensus forecast of 1.8 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 four consecutive quarters after eight consecutive quarters below this range.

The consumer price index advanced 0.5 percent the quarter in original terms (up 0.3 percent in seasonally adjusted terms), after no change in the three months to June, also just above the consensus forecast of 0.4 percent.

Housing-related costs were the main factor pushing up headline inflation in the three months to September. Prices for housing and household utilities rose 3.0 percent on the year, while purchase costs for new housing advanced 5.4 percent and housing rentals rose 2.2 percent. This was partly offset by a weaker growth in transport and communication prices, with both petrol prices and international air fares dropping significantly on the quarter.

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) increased slightly from 0.9 percent in the three months to June to 1.0 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 2.4 percent to 2.6 percent.

At the RBNZ's last policy meeting, held late September, officials noted that volatility in tradable prices will likely put downward pressure on headline inflation in coming quarters. Further ahead, however, officials expect that capacity pressures in the domestic economy will result in stronger growth in non-tradable prices, bringing headline inflation close to the mid-point of its target range. Officials at the September 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 November 9.

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.