New Zealand consumer prices rose in the first quarter by less than the central bank forecast, giving policy makers scope to hold interest rates at a record-low 2.5 percent until next year.
Consumer prices climbed 0.5 percent from the fourth quarter, when they declined 0.3 percent, Statistics New Zealand said in Wellington today. The result matched the median estimate in a Bloomberg News survey of 16 economists. Prices increased 1.6 percent in the year ended March 31, the slowest annual pace since September 2010.
Investors are betting policy makers won’t raise interest rates until next year as annual inflation is less than the midpoint of the 1 percent to 3 percent range the central bank is required to target. Last month, Governor Alan Bollard forecast quarterly inflation of 0.7 percent and signaled the cash rate would be unchanged for much of 2012 as a surging currency and modest economic recovery curbed pressure on prices.
Bollard “will need to see evidence of a sustained lift in core inflation from a number of price, activity and capacity sources to trigger cash rate hikes,” said Mark Smith, senior economist at ANZ National Bank Ltd. in Wellington. “This looks a way off with the labor market treading water, currency elevated and commodity prices doing nothing.”
New Zealand’s dollar bought 81.67 U.S. cents as of 5:30 p.m. in Wellington, little changed from immediately before the report.
Just one of 14 economists surveyed last month by Bloomberg News forecast Bollard will raise the cash rate before the end of September. Ten expect the rate will be higher by the end of the year.
Bollard in January said he won’t seek reappointment when his current term ends Sept. 25, meaning a rate review on Sept. 13 will be his last.
The chance of a quarter-point rate rise by December fell to 8 percent from 20 percent yesterday, according to swaps prices from Westpac Banking Corp. at late yesterday.
Bollard on March 8 said the New Zealand dollar’s strength was likely to reduce the prices of imported goods. The currency gained about 7.5 percent in the year ended March 31, the best performer of 16 major currencies tracked by Bloomberg.
The central bank forecast annual inflation would slow to 1.4 percent in the year through September 2012, the weakest annual pace in 12 years, and wouldn’t exceed 2 percent until the second half of 2014.
In the first quarter, consumer prices were led higher by a 14 percent increase in cigarettes and tobacco after taxes rose on Jan. 1, the statistics agency said. Excluding the change, consumer prices climbed 0.2 percent, the report showed.
Bollard’s primary focus is on non-tradable inflation, a core measure of prices not influenced by currency fluctuations and fuel.
Non-tradable prices increased 1.2 percent from the fourth quarter, today’s report showed. The measure gained 2.5 percent from a year earlier.
About half of the quarterly increase in non-tradable prices was caused by cigarettes and tobacco, officials said. House rentals, property maintenance services and the cost of purchasing a new home, which reflects construction expenses, also rose. Dwelling insurance surged 19 percent as an earthquake levy increased, the agency said. Telecommunication services and electricity prices were little changed.
Tradable prices declined 0.4 percent from the fourth quarter, led by seasonal declines in international airfares and package holiday prices. The cost of books, appliances and audio-visual equipment also dropped. Gasoline prices rose 2.3 percent. Food prices increased 0.2 percent.
From a year earlier, tradable prices gained 0.3 percent.