Inflation beats expectations

Higher household costs helped to push consumer prices higher in the past three months, beating expectations, but further interest rate cuts remain likely amid a weaker outlook for economic growth.

Official figures show the Consumer Price Index rose 0.7 percent in the three months to September.

The annual inflation rate is down to 1.5 percent from 1.7 percent in the June quarter.

A key driver of the quarterly rise was an almost 5 percent rise in council rates.

"This year's increase in local authority rates is slightly less than last year's, but higher than the 4.4 percent annual average over the last five years and over double the rate of general inflation," said Stats NZ prices senior manager Paul Pascoe.

Vegetables, meat and poultry also went up but were partially offset by falling prices for fruit, petrol and new cars.

Adding to households' costs was a rise in rents, up 2.9 percent for the year.

"The increase in rents was felt more in some regions than others, up 4.1 percent for the year in Wellington compared with 1.8 percent in Auckland and 1.3 percent in Canterbury," Pascoe said.

Households paid more for their insurance, but this year's increase was not as great as the one seen in 2018.

While third quarter inflation numbers came in stronger than expected by both the RBNZ and the market, the gloomy domestic and global outlook for economic growth is expected to hold down inflation, prompting the RBNZ into further action.
Looking at the details, ASB senior economist Mark Smith said non-tradable inflation had risen to an eight year high but core inflation measures had barely moved.

The RBNZ delivered a rate cut in May and a larger one in August, and Mark Smith said the central bank had confidence the economy would respond to those.

"However, we expect increasing spare capacity in the NZ labour market and economy in general to dampen subsequent medium-term inflationary pressure," he said.

ASB thought that would see the Official Cash Rate cut further in November and February to a record low 0.5 percent.

This article was originally published on RNZ and re-published with permission.

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