Soaring domestic airfares and higher rents help hold up inflation at 1.5%

Wednesday, 16 October 2019

Inflation ran a little hotter than expected in the three months to the end of September, due in part to soaring rising prices for domestic plane tickets.

But the inflation-rise was not enough to make ASB Bank revise its forecasts for interest rate cuts.

Statistics NZ said the consumer price index rose 0.7 per cent in the September quarter, taking the annual inflation rate to 1.5 per cent.

Airfares are jumping even before Jetstar pulls out of regional routes.

A 16 per cent jump in domestic airfares for the quarter came as a surprise, Kiwibank senior economist Jeremy Couchman said.

* NZ interest rate probably headed lower, but now there is doubt

* Jetstar to cut regional flights from November**

'I don't think this will be anything to do with Jetstar pulling the plug on some of the regions but that might have an affect in the future,' he said.

Domestic airfares could 'jump around' from quarter to quarter, he said.

Rents in Wellington are leading the market higher.

Air New Zealand spokeswoman Anna Cross said the percentage increase published by Statistics was 'much higher than what our own data suggests' and that comparing quarter-on-quarter changes didn't take into account seasonality.

The September-quarter inflation rate came in 10 to 20 basis points ahead of forecast.

Overall, transport costs were up 0.5 per cent, with a 0.8 per cent fall in petrol prices countering the extra cost of airfares and a 6.6 per cent jump in rego costs that reflected changes to ACC charges.

Rents were up 2.9 per cent over the year, with tenants in Wellington in particular feeling the pinch.

Rents there were up 4.1 per cent, compared with a 1.8 per cent rise in Auckland and a 1.3 per cent increase in Canterbury, over the year to September.

Rates increased 4.9 per cent and home insurance costs were up 7.6 per cent over the year after a 16 per cent leap the prior year.

'Household costs increased over the past year, although prices for construction of new homes, local authority rates, and insurance increased at a slower rate this year than last year,' Statistics NZ manager Paul Pascoe said.

Overall, food prices were up 1.3 per cent in the September quarter.

ASB said the quarterly inflation figure of 0.7 per cent was slightly firmer than the 0.5 per cent rise forecast in the Treasury's Monetary Policy Statement in August, and analysts' concensus forecast of a 0.6 per cent increase.

But it held to its own forecast that the Reserve Bank would still lop 25 basis points off the official cash rate (OCR) in November and February, taking the rate down to a new record low of 0.5 per cent.

Kiwibank agreed a rate cut in November remained on the cards.

Westpac attributed a US 0.2 cent rise in the value of the New Zealand dollar to the inflation data, but said there was 'limited reaction' in the bond market.