New Zealand: Inflation drops sharply in Q1

Consumer prices rose 0.5% in Q1 over the previous quarter according to Statistics New Zealand, up from Q4’s 0.1% rise. The reading reflected higher tobacco prices due to a tax hike on 1 January, as well as price rises for other items such as food and non-alcoholic beverages and housing and household utilities.

Inflation tumbled from 1.6% in Q4 to 1.1% in Q1, near the bottom of the Central Bank’s 1.0%-3.0% target range. The sharp decline was a result of a base effect and the introduction of a free year of tertiary education.

New Zealand Inflation Forecast

Going forward, inflation should gradually move back towards the center of the Central Bank’s target range thanks to a slightly weaker NZ dollar and a more favorable base effect. Last month, FocusEconomics Consensus Forecast panelists expected inflation to average 1.8% in 2018 and 2.0% in 2019. A new Consensus Forecast will be published on 24 April.