Economy

Fuel and rent prices push inflation up

Consumer inflation increased on the back of higher petrol prices and rents in the past three months, but a gloomy economic outlook is likely to lead to cuts in interest rates possibly as soon as next month.

The Consumer Price Index (CPI) rose 0.6 percent in the three months to June, compared with 0.1 percent in the previous quarter.

The annual inflation rate rose to 1.7 percent from 1.5 percent in March quarter.

Fuel prices rose 5.8 percent as world oil prices increased. Household costs were the other driver of higher prices with rents rising around the country, offsetting cheaper second hand cars and lower domestic airfares.

"Petrol prices rose slowly over the first part of the quarter, reaching a peak in late May and then falling," Stats NZ prices senior manager Paul Pascoe said.

The numbers were in line with market and Reserve Bank expectations, but still left the inflation rate below the central bank's 2 percent target point.

The cost of running a house was the other main inflationary influence, particularly rents which rose 1 pct, led by Wellington. Appliances, furniture and textiles were also more expensive after the previous quarter's price falls.

But there were some signs of domestic inflation pressures. The so-called "non-tradable items", such as rents, insurance, building costs, and goods and services that do not face overseas competition, were 2.8 percent higher than a year ago. Tradable items, which include imported goods, were only fractionally higher.

Recent surveys have highlighted that businesses are struggling to pass on higher costs so they can maintain sales and market share, but at the cost of their profits.

The Reserve Bank (RBNZ) normally discounts such things as tax rises and volatile petrol and food prices.

The pressure remains for the central bank to cut its official cash rate (OCR) further to counter weak inflation and give a slowing economy a shot in the arm.

The OCR was cut to 1.5 percent in May, the first reduction since late 2016, and expectations are that further cuts - possibly two by the end of the year - may be coming to counter a slowing economy and gloomy international outlook.

"Concerns about slowing domestic growth and the uncertain global environment meant that the RBNZ had already judged that a further OCR cut was "likely". Today's report will do nothing to change that stance," Westpac senior economist Michael Gordon said.

Financial markets were unmoved by the numbers.

Help us create a sustainable future for independent local journalism

As New Zealand moves from crisis to recovery mode the need to support local industry has been brought into sharp relief.

As our journalists work to ask the hard questions about our recovery, we also look to you, our readers for support. Reader donations are critical to what we do. If you can help us, please click the button to ensure we can continue to provide quality independent journalism you can trust.

Comments

Newsroom does not allow comments directly on this website. We invite all readers who wish to discuss a story or leave a comment to visit us on Twitter or Facebook. We also welcome your news tips and feedback via email: contact@newsroom.co.nz. Thank you.

With thanks to our partners