New Zealand’s Inflation Slows as RBNZ Target Remains Elusive

(Bloomberg) -- New Zealand inflation slowed in the third quarter, adding to signs of benign price pressures that may prompt the central bank to cut interest rates again as soon as next month.

• Consumer prices gained 1.5% from a year earlier, Statistics New Zealand said Wednesday in Wellington. That compared with 1.7% in the second quarter and exceeded the 1.4% expected by economists. Prices rose 0.7% from three months earlier

Key Insights

• The Reserve Bank in August forecast annual inflation would slow to 1.3% in the third quarter, and remain below the midpoint of its 1%-3% target until late 2021
• Last month, the RBNZ held the official cash rate at a record-low 1% and said there remains scope for more monetary stimulus, if necessary, to support the economy and meet its inflation and employment objectives
• With business confidence weakening and leading indicators of manufacturing 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 1.8% from a year earlier, edging up from 1.7% in the second quarter, while other measures of underlying inflation were also little changed. The RBNZ publishes its own core data later Wednesday
• Tradables prices fell 0.7% from a year earlier led by cheaper fuel and imported telecommunications equipment
• Non-tradable prices, which aren’t influenced by the currency, rose 3.2% from a year earlier -- the fastest pace since 2011 -- led by rents, tobacco and the cost of building new houses

Market Reaction

• The New Zealand dollar rose 0.2% after the report, buying 63.05 U.S. cents at 11:31 a.m. in Wellington. The chance of a quarter-point rate cut at the RBNZ’s next review in November fell to 92% from 100% before the release, according to swaps data

Get More

• New Zealand Sees Scope to Cut Interest Rates Again If Needed

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

To contact the editors responsible for this story: Matthew Brockett at mbrockett1@bloomberg.net, Chris Bourke, Peter Vercoe

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