NZ: Consumer Price Index

Wed Jan 24 15:45:00 CST 2018

Actual Previous
Q/Q percent change 0.1% 0.5%
Y/Y percent change 1.6% 1.9%

New Zealand's consumer price index rose 1.6 percent on the year in the three months to December, down from 1.9 percent in the three months to September. The index advanced 0.1 percent on the quarter in original terms, after an increase of 0.5 percent previously.

Lower food and car prices were the main factors driving the decline in headline inflation in the three months to December. Food prices fell 1.7 percent on the quarter in original terms, mainly reflecting a large seasonal decline in vegetable prices, but even after seasonal adjustment there was only a small increase of 0.2 percent on the quarter. Car prices were also reduced heavily on the quarter, down 6.2 percent, while officials also noted that changes in retail pricing strategies were resulting in lower prices for a range of household items. These declines were party offset by higher transport costs, up 3.2 percent on the quarter, reflecting an increase of 6.1 percent in petrol prices and 11.0 percent in airfares. Housing costs also rose strongly on the quarter.

At the RBNZ's last policy meeting, held early November, officials noted headline inflation would likely face upward pressure from domestic growth but downward pressure from external factors. Officials concluded that this would keep headline inflation close to the mid-point of the target range over the forecast period, supporting their assessment that no change in policy rates was required. Officials at the November meeting also stated that policy will remain accommodative for a "considerable period" suggesting there is little chance of a change in policy settings at the next meeting scheduled for early next month.

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.