N.Z. Inflation Accelerates, Boosting Case for Rate Rises

Telecom Corp. Of New Zealand Store
A man exits a Telecom Corp of New Zealand Ltd. store on Willis Street in downtown Wellington. Annual inflation accelerated from 1.4 percent in the 12 months to September, led by increased housing costs, the statistics agency said. Photographer: Mark Coote/Bloomberg

Jan. 21 (Bloomberg) -- New Zealand’s annual inflation rate accelerated in the fourth quarter, spurring bets the Reserve Bank will raise interest rates as early as this month.

Consumer prices rose 1.6 percent from the year-earlier quarter, the fastest annual pace since early 2012, Statistics New Zealand said in Wellington today. Prices gained 0.1 percent from the third quarter. Economists expected annual inflation of 1.5 percent and a quarterly drop of 0.1 percent, according to the median of forecasts in a Bloomberg survey.

Faster inflation, rising business confidence and soaring house prices increase the likelihood Reserve Bank of New Zealand Governor Graeme Wheeler will raise the official cash rate from a record-low 2.5 percent at the next review on Jan. 30, ANZ Bank New Zealand Ltd. said. The rate has been unchanged since March 2011. New Zealand’s currency gained.

“The cash rate needs to be lifted in January,” Mark Smith, senior economist at ANZ Bank in Wellington, said in an e-mailed note. “Both inflation and GDP growth have now surprised on the upside” compared to the RBNZ’s forecasts published mid-December, he said.

New Zealand’s dollar rose after the report, buying 83.25 U.S. cents at 12:05 p.m. in Wellington from 82.61 cents before the release. There is a 65 percent chance of a rate rise this month, according to swaps prices compiled by Bloomberg.

Annual Inflation

ANZ joins Citigroup Inc. in predicting a rate rise this month. Westpac Banking Corp. economists said a January increase is a “legitimate question” they will be assessing, according to an e-mailed note.

Annual inflation accelerated from 1.4 percent in the 12 months to September, led by increased housing costs, the statistics agency said.

Wheeler’s primary focus is on non-tradable inflation, a core measure of prices not influenced by currency fluctuations and fuel. Non-tradable prices rose 0.5 percent from the third quarter, led by property maintenance, rents and the cost of building new homes.

The currency’s rise in the past six months has limited the cost of imports and helped contain inflation, even as economic growth accelerated. Tradables prices, which are influenced by currency movements, fell 0.5 percent from the third quarter, led by fuel, vegetables and imported computer prices.

Business confidence surged to a 20-year high in the fourth quarter, adding to signs of a steady pick-up in inflation pressure, the New Zealand Institute of Economic Research said last week. House prices rose 10 percent in December from a year earlier, the fastest annual pace since 2007, Quotable Value New Zealand, a government-owned property researcher, said Jan. 14.

The RBNZ on Dec. 12 signaled it will raise interest rates in 2014 in order to keep average inflation near the 2 percent midpoint of its target range. Wheeler said the economic expansion had “considerable momentum” and projected annual inflation will exceed 2 percent by the end of 2015.

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