New Zealand: Inflation lingers above Central Bank?s target for second consecutive quarter
April 18, 2011
In the first quarter, consumer prices added 0.8% over the previous quarter, which came in at only a fraction of the 2.3% increase observed in the final three-month period of 2010. The quarterly reading fell short of market expectations, which had consumer prices rising 1.0% and represented the lowest quarterly increase since the second quarter of 2010. The main drivers behind the reading were higher prices for transport (+2.5% quarter-on-quarter) as well as for alcoholic beverages and tobacco (+3.5% qoq), which were partially offset by lower prices for recreation and culture (-1.7% qoq) as well as for household contents and services (-1.9% qoq). Despite the subdued price increase in the first quarter, annual headline inflation climbed to 4.5% from 4.0% in the fourth quarter, driving inflation to the highest level since the July-September period of 2008 and above the Reserve Bank of New Zealand's inflation target of 2.0% 1.0%. Going forward, high commodity prices and reconstruction spending, in the aftermath of the earthquake, are expected to add pressures on consumer prices in the months ahead. Meanwhile, the Central Bank anticipates inflation to rise to 4.4% in the fiscal year 2011 (ending in March 2012) and 2.1% in fiscal 2012.
Author: Ricardo Aceves, Senior Economist