New Zealand Inflation Remains Below Central Bank Target Midpoint

(Bloomberg) -- New Zealand consumer prices rose at a faster pace in the second quarter, led by a surge in fuel prices, while there were few signs of broadening inflation pressures elsewhere in the economy that would take the gauge toward the central bank’s target midpoint.

• Consumer prices gained 1.7% from a year earlier, Statistics New Zealand said Tuesday in Wellington. That was faster than the 1.5% pace in the first quarter and matched the median forecast of economists. Prices rose 0.6% from three months earlier, also matching expectations

Key Insights

• The Reserve Bank in May forecast annual inflation would rise to 1.7% in the second quarter, but would then slow and remain below the midpoint of its 1-3% target until mid-2021
• Last month, the RBNZ held the official cash rate at a record-low 1.5% and said that given the downside risks for employment and inflation, a lower OCR may be needed
• With business confidence weakening and leading indicators of manufacturing and spending also soft, there is increasing concern the economy lacks the momentum needed to get inflation back to 2%
• Consumer prices excluding food, fuel and energy rose 1.7% from a year earlier, picking up from 1.5% in the first quarter, while other measures of underlying inflation also accelerated slightly. The RBNZ publishes its own core inflation measures later Tuesday
• While the data showed a 5.8% lift in fuel prices in the quarter, the RBNZ can look through temporary volatility when it sets monetary policy
• Non-tradable prices, which aren’t influenced by the currency, rose 2.8% from a year earlier -- matching the pace in the first quarter -- led by rents and the cost of building new houses

Market Reaction

• The New Zealand dollar was little changed at 67.22 U.S. cents at 10:57 a.m. in Wellington. The chance of a rate cut at the next review in August remained at 84%, according to swaps data.

Get More

• RBNZ Says Lower Rate May Be Needed After Holding at Record Low

To contact the reporter on this story: Tracy Withers in Wellington at twithers@bloomberg.net

To contact the editors responsible for this story: Nasreen Seria at nseria@bloomberg.net, Michael Heath, Victoria Batchelor

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