Economy

Rising rents help drive up inflation in past three months

Rising rents, other household costs and airfares have driven consumer inflation in the past three months, dampening prospects of an interest rate cut any time soon.

Official figures show the Consumer Price Index rose 0.5 percent in the three months to December, taking the annual inflation rate to 1.9 percent from 1.5 percent in the previous quarter.

Seasonal increases in transport costs, and rising household costs such as rents, rates and insurance were the main cost pressures.

"International airfares usually hit their seasonal peak in the December quarter," Stats NZ prices senior manager Paul Pascoe said.

Adding to household costs was a rise in rents, up 3.1 percent for the year, the highest increase in 11 years.

"The rise in rent prices is likely to reflect the high demand for rental property in parts of the country... Some landlords have upgraded their properties in order to meet the new standards and may have passed on the costs to their tenants," Pascoe said.

Fresh fruit and vegetables were cheaper, offsetting dearer meat and poultry, while clothing was also more expensive.

Domestic or non-tradeable inflation - which is not driven by overseas prices - held above 3 percent, close to an eight-year high. Core inflation, which excludes items prone to big price swings, such as petrol, was at 2 percent.

The inflation numbers were just above expectations, and stronger than the Reserve Bank (RBNZ) had been forecasting.

The RBNZ aims to hold inflation around 2 percent, and subdued price pressures were a factor last year in the RBNZ cutting its official cash rate (OCR) to 1 percent from 1.75 percent.

Kiwibank chief economist Jarod Kerr said the RBNZ would be cheered by the numbers, which would see it holding interest rates in the near term.

"Inflation is not guaranteed to hold up around the RBNZ's target midpoint. Combined with ongoing downside risk factors, such as global trade tensions, we maintain our view that the RBNZ will deliver an OCR cut to 0.75 pct around the middle of the year," he said.

The New Zealand dollar strengthened slightly and short term wholesale interest rates were marginally higher after the data.

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

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