Otago Daily Times

In­fla­tion lower than tipped as CPI rises 0.7%

- JAMIE GRAY Business · Finance · Real Estate · Greater Auckland · New Zealand · Reserve Bank of India · Statistics New Zealand · Forever Living Products · Auckland Region

AUCK­LAND: New Zealand’s in­fla­tion rate was lower than ex­pected over the third quar­ter, adding weight to the case for more stim­u­lus from the Re­serve Bank, economists say.

How­ever, a resur­gent hous­ing mar­ket will re­quire a fine bal­anc­ing act from the cen­tral bank as it seeks to re­vi­talise an econ­omy still reel­ing from the im­pact of Covid­19.

Data from Stats NZ showed higher prices for veg­eta­bles and rates, and a re­bound in the cost of pub­lic trans­port, led to a 0.7% rise in the con­sumer price in­dex in the Septem­ber 2020 quar­ter, tak­ing an­nual in­fla­tion to 1.4%.

The quar­terly re­sult was well be­low the Re­serve Bank’s fore­cast of 1.1%.

‘‘It’s very un­cer­tain, go­ing for­ward, what the in­fla­tion rate will be, but it high­lights the dif­fi­cult bal­anc­ing act that the Re­serve Bank has,’’ ASB econ­o­mist Mark Price said.

‘‘But in all like­li­hood, we think more stim­u­lus is needed.’’

Mr Price noted there were signs that the do­mes­tic econ­omy — par­tic­u­larly prop­erty — was re­spond­ing to very low mort­gage rates and other sup­port mea­sures.

‘‘On the ba­sis of the very weak in­fla­tion outlook, and a highly un­cer­tain outlook for the econ­omy, you have to go with what is the most likely course for in­fla­tion and the econ­omy as well,’’ he said.

Re­serve Bank gover­nor Adrian Orr is ex­pected to un­veil plans for the Fund­ing for Lend­ing Pro­gramme (FLP) at next month’s mon­e­tary pol­icy state­ment.

Mr Price said he ex­pected the pro­gramme to be worth $30 bil­lion to $50 bil­lion, go­ing on the size of sim­i­lar pack­ages de­ployed over­seas, and to be heav­ily skewed to­wards small to medium­sized busi­nesses.

ANZ said from to­day’s weak start­ing point, the outlook was for soft­ness in in­fla­tion over the medium term and that cur­rent low in­fla­tion now could serve to re­in­force low in­fla­tion ex­pec­ta­tions.

‘‘The case for more mon­e­tary stim­u­lus re­mains clear for now, with an FLP ex­pected to be de­ployed in Novem­ber,’’ the bank said.

The Re­serve Bank said in Au­gust that its mon­e­tary pol­icy com­mit­tee had agreed that a pack­age of ad­di­tional mon­e­tary in­stru­ments must re­main ‘‘in ac­tive prepa­ra­tion’’.

Sta­tis­tics NZ said the gain in in­fla­tion over the quar­ter more than re­versed a 0.5% drop in in­fla­tion dur­ing the June 2020 quar­ter, when petrol prices fell sharply as the pan­demic hit.

By early June, New Zealand was back to Covid Alert Level 1, but in mid­Au­gust, the Auck­land re­gion moved back to Level 3. The rest of New Zealand moved to Level 2 at this time.

Covid­19 un­cer­tainty was a fac­tor in the 18% rise in veg­etable prices over the Septem­ber quar­ter.

‘‘Be­cause restau­rants and cafes were shut dur­ing Covid Alert Lev­els 3 and 4 in April, many tomato grow­ers de­layed or re­duced plant­ing their crops dur­ing this time be­cause they were not sure if de­mand would re­cover,’’ Stats NZ prices se­nior man­ager Aaron Beck said. This led to a sup­ply short­age in the Septem­ber quar­ter, he said.

Coun­cil rate rises have been more muted than usual this year in the wake of Covid­19. The 3.1% an­nual in­crease in lo­cal au­thor­ity rates and pay­ments is the small­est in 20 years.

West­pac’s Michael Gor­don said while the econ­omy had bounced back rapidly from the lock­down, it was still op­er­at­ing well be­low its pre­Covid trend, which he ex­pected would put down­ward pres­sure on prices.

The an­nual in­fla­tion rate was also likely to drop about 0.3% next year due to the end of the ‘‘jumbo­sized’’ an­nual in­creases in to­bacco ex­cise duty, Mr Gor­don said. — The New Zealand Her­ald

❛ The case for more mon­e­tary stim­u­lus re­mains clear for now, with an FLP ex­pected to be de­ployed in

Novem­ber

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