New Zealand posted the slowest inflation in more than 15 years in the first quarter, supporting some traders’ expectations that the central bank will cut interest rates later this year.
The consumers price index rose 0.1 percent from a year earlier, the smallest increase since the third quarter of 1999, Statistics New Zealand said in Wellington Monday. The median forecast of 16 economists surveyed by Bloomberg was for a 0.2 percent increase. Prices declined 0.3 percent from the fourth quarter.
Benign inflation adds to signs Reserve Bank of New Zealand Governor Graeme Wheeler can keep the official cash rate unchanged at 3.5 percent, while some traders bet he’ll cut borrowing costs before the end of the year. Last month, the RBNZ signaled it didn’t expect to raise rates until at least early 2017 as it faces an extended period of inflation below the bottom of its 1 percent-to-3 percent target range.
Today’s report “supports our view that the RBNZ will cut interest rates before the end of the year,” Paul Dales, chief Australia and New Zealand economist at Capital Economics, said in a research note. Softening economic growth “will prevent underlying inflation from rising as far as the RBNZ expects,” he said.
The New Zealand dollar fell after the report. It bought 76.83 U.S. cents at 11 a.m. in Wellington from 77 cents immediately before the release. There is about a 60 percent chance of a rate cut by December, according to swaps data compiled by Bloomberg.
Prices dropped in the quarter after a 0.2 percent fall in the three months through December, the first consecutive declines since 1999. Economists expected a 0.2 percent fall.
Annual inflation, which slowed from 0.8 percent in the fourth quarter, was slightly stronger than the zero percent forecast by the RBNZ in its March 12 monetary policy statement. The central bank predicted inflation will accelerate slowly this year and next, reaching its 2 percent target in the third quarter of 2017.
New Zealand joins other nations in experiencing benign inflation. Annual price growth in Australia was the slowest since mid-2012 in the first quarter, a report April 22 will show, according to economists surveyed by Bloomberg.
New Zealand inflation was slowed by another plunge in gasoline prices, which dropped 11 percent in the first quarter after a 5.7 percent decline in the three months through December. Excluding gasoline, consumer prices rose 0.3 percent in the quarter and 1 percent from a year earlier, today’s report showed.
Cigarette and tobacco prices rose 12 percent after an increase in excise taxes in January. Excluding tobacco, consumer prices slid 0.7 percent from the fourth quarter and fell 0.2 percent from a year earlier.
Non-tradable inflation, a core measure of prices not influenced by the currency and fuel, was led by increases in tobacco, rentals and the cost of building a new home. The gauge gained 1.1 percent in the quarter from the previous three months. From a year ago, non-tradables prices rose 2.3 percent, the smallest gain since 2012.
Tradables prices, which are influenced by currency movements, slumped 2.2 percent from the fourth quarter led by fuel and seasonal falls in airfare and package holidays, the statistics agency said.
From a year ago, tradables prices fell 2.8 percent -- the most since the series began in 1999. The RBNZ forecast a 2.6 percent decline.