Rising petrol prices and higher rents push New Zealand inflation higher

Tuesday, 16 July 2019

After falling at the start of the year, petrol prices rose strongly in the June quarter. Combined with an increase in rents, consumer inflation rose to 1.7 per cent in the year to June 30, Statistics New Zealand said.

A bounce back in petrol prices and higher housing costs have pushed inflation higher in recent months.

On Tuesday Statistics New Zealand revealed the consumer price index (CPI) for the three months to the end of June increased 0.6 per cent.

The CPI, the most commonly used measure for household inflation, was 1.7 per cent for the year to June, up slightly from March.

Petrol prices rose strongly in the June quarter, up 5.8 per cent, bouncing back from a 7 per cent drop in the June quarter.

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According to Statistics NZ, the average price of 91 octane petrol was $2.13 a litre the latest quarter, up from $2.01 in March. Petrol prices hit a peak of $2.18 in September 2018.

'Petrol prices rose slowly over the first part of the quarter, reaching a peak in late May and then falling,' prices senior manager Paul Pascoe said.

Rents are also climbing, up 1 per cent in the June quarter and 2.5 per cent in 12 months. Rents in Wellington are up 3.8 per cent in a year, almost double the increase in Auckland (2 per cent), while Christchurch rents rose less than 1 per cent in 12 months.

Reserve Bank expect to cut OCR

The rise in inflation was in line with the expectations of the Reserve Bank, which aims to keep inflation close to the midpoint of a 1-3 per cent target.

However economists warned that the underlying picture for inflation remained weak, meaning the Reserve Bank was likely to cut the benchmark official cash rate (OCR) again at its next meeting in August.

'While today's data is a step in the right direction, we don't think it will be enough to stop the [Reserve Bank] cutting rates at its next meeting in August,' Capital Economics' Ben Udy said.

'What's more, we suspect that subdued economic activity and rising unemployment will keep underlying inflation below the Reserve Bank's target until 2021.'

ASB senior economist Mark Smith said low global inflation and slowing global growth meant central banks around the world were looking to lower interest rates.

'Headwinds facing the NZ economy remain and spare capacity in the NZ labour market and economy in general looks set to increase and will likely dampen medium-term inflationary pressure,' Smith said.

ASB expects the Reserve Bank to cut the OCR in both August and again in November to a low of 1 per cent.