‘Benign’ New Zealand Inflation Vindicates English, Damps Kiwi
NZ Finance Minister Bill English
Nelson Ching/Bloomberg
Bill English, New Zealand's finance minister.
Bill English, New Zealand's finance minister. Photographer: Nelson Ching/Bloomberg
New Zealand’s inflation accelerated less than economists estimated, backing up Finance Minister Bill English’s view that price gains aren’t a problem and giving the central bank room to keep interest rates low. The kiwi fell.
Consumer prices rose 0.8 percent in the first quarter from the previous three months, when they advanced 2.3 percent, Statistics New Zealand said in Wellington today. The median estimate in a Bloomberg News survey of 12 economists was for a 1 percent gain.
Economic growth of less than 1 percent in the fourth quarter and slower-than-expected inflation add to the case for central bank Governor Alan Bollard to keep rates at a record-low 2.5 percent for much of 2011 to buoy confidence after earthquakes in Christchurch hurt spending. New Zealand’s stance contrasts with those in China, India and Singapore, where central banks are tightening policy amid growing price pressures.
“Underlying inflation remains benign” in New Zealand, said Helen Kevans, an economist at JPMorgan Chase & Co. in Sydney. “There remains little urgency for Governor Bollard to tighten policy.”
New Zealand’s dollar and bond yields fell after the report. The currency bought 79.38 U.S. cents at 5 p.m. in Wellington after reaching a three-year high of 80.05 cents before today’s data. Three-year bond yields fell 6 basis points to 3.51 percent.
Inflation Target
Bollard, who is required to keep annual inflation between 1 percent and 3 percent, said on April 11 he will focus monetary policy on medium-term inflation pressures rather than any immediate jump in costs arising from record-high prices for milk and meat in world markets.
Prices excluding food, fuel and electricity rose 0.1 percent in the quarter, the statistics agency said today.
English said in a Bloomberg Television interview last week he isn’t concerned about inflation, which has been exacerbated by a higher sales-tax and other one-time events. An Oct. 1 increase in sales tax to 15 percent from 12.5 percent and a boost in levies on tobacco and cigarettes has contributed to consumer-price gains.
“With good central bank focus on an inflation target, we don’t see any reason to believe that inflation is going to be a problem for us over the next few years,” English said in the interview on April 15 at the Boao Forum for Asia in southern China’s Hainan province. “There will be some pressures there as the economy picks up, but we’re in pretty good shape on inflation.”
Christchurch Quake
Annual inflation accelerated to 4.5 percent in the year ended March 31 and Bollard has forecast price gains may reach 5.4 percent in the period to June 30 before falling below 3 percent by the end of 2011.
Bollard cut the official cash rate on March 10 to boost confidence after an earthquake in the southern city of Christchurch on Feb. 22 killed more than 170 people, wrecked houses and forced companies out of the central business district. The central bank slashed its 2011 growth forecast to 1.3 percent from 2.7 percent.
Ten of 14 economists surveyed by Bloomberg News last month predicted Bollard will leave the official cash rate at 2.5 percent until the first quarter of 2012. Four estimated a rate increase in the fourth quarter.
Elsewhere, Asian central banks are tightening policy as rising commodity prices fan inflation. China yesterday increased banks’ reserve requirements and central bank Governor Zhou Xiaochuan said monetary tightening will continue for “some time.”
In India, inflation accelerated more than economists estimated in March as the cost of fuel and manufactured goods rose, putting pressure on policy makers to raise rates in Asia’s third-largest economy. Vietnam, Taiwan, South Korea and Thailand also increased borrowing costs this year to contain prices, and Singapore said last week it would allow further currency gains.
To contact the reporter on this story: Tracy Withers in Wellington at twithers@bloomberg.net
To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net
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