N.Z. Consumer Prices Rise Less Than Forecast on Strong Kiwi

New Zealand consumer prices increased less than economists forecast last quarter as a strengthening currency makes imports cheaper, adding to signs a period of record-low interest rates will be prolonged.

Consumer prices rose 0.4 percent from the fourth quarter, when they fell 0.2 percent, Statistics New Zealand said in Wellington today. That’s less than the 0.5 percent median estimate in a Bloomberg News survey of 14 economists. Prices gained 0.9 percent from a year earlier, matching estimates.

Annual inflation was slower than the central bank’s 1 percent to 3 percent target for the third straight quarter. Reserve Bank Governor Graeme Wheeler last month said he expected to leave borrowing costs unchanged at 2.5 percent this year because of the effects of a drought and the strong currency on growth.

“The continued deflationary impact of the elevated New Zealand dollar suggests inflation will remain subdued over the first half of 2013,” Nick Tuffley, chief economist at ASB Bank Ltd. in Auckland, said in an April 15 note. He forecasts no change in rates until March 2014.

New Zealand’s dollar has gained 2.5 percent this year, the best-performing Group of 10 currency. It climbed to 84.98 U.S. cents as of 11:35 a.m. in Wellington from 84.82 cents immediately before the report.

Rates Outlook

Nine of 15 economists surveyed by Bloomberg News this week expect no change in rates this year. Six see a rate rise by Dec. 31. None forecast a rate cut.

Wheeler started in his role in late September after signing an agreement with Finance Minister Bill English requiring him to keep annual inflation in a 1 percent to 3 percent range, with a focus on the 2 percent midpoint.

The central bank on March 14 estimated prices rose 0.9 percent in the first quarter from a year earlier. It projected annual inflation would pick up gradually in the next two years, and won’t reach 2 percent until the second half of 2015.

Policy makers have said that a pick-up in the housing market is an area of focus for them, especially if there are signs that rising dwelling prices are fanning inflation.

“If the house price and credit expansion begins to fuel excessive consumption spending and inflationary pressures, a monetary policy response would become more likely,” Deputy Governor Grant Spencer said April 8. “The Reserve Bank’s flat interest rate outlook in our recent monetary policy statement would need to be revisited.”

Tobacco Taxes

The cost of purchasing a new home, which reflects construction expenses, gained 0.9 percent from the fourth quarter. In Canterbury, where rebuilding after devastating earthquakes in 2010-11 is accelerating, the cost rose 3.3 percent.

In the first quarter, the main influences on inflation were higher tobacco and cigarette prices as taxes increased on Jan. 1, today’s report showed. Excluding tobacco, inflation was 0.2 percent in the quarter.

Wheeler’s primary focus is on non-tradable inflation, a core measure of prices not influenced by currency fluctuations and fuel.

Non-tradable prices increased 1.1 percent from the fourth quarter, the statistics agency said. The measure gained 2.4 percent from a year earlier, slowing from 2.5 percent through December. The central bank forecast a 2.4 percent pace.

Tobacco made up about half the quarterly increase in non-tradable inflation in the quarter, the agency said. Rents and prescription charges also contributed.

Prices of so-called tradable items fell 0.5 percent from the fourth quarter as international airfares and package holidays showed seasonal declines, the report showed.

From a year earlier, tradable prices dropped 1.1 percent. The central bank forecast a 0.9 percent annual fall.

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