Inflation a boost
declined in Auckland.
“The CPI measure of rents remains at odds with the anecdotes of severe housing shortages,” Gordon wrote.
Economists have focused on the quarterly rise of overall inflation, at 0.4 per cent, taking annual inflation back to 1.3 per cent and back into the Reserve Bank’s mandated target range for the first time in two years.
This is expected to ease pressure on the bank to cut rates further.
Inflation remains historically low and is unlikely to prompt ratee hikes in the near future. Inflation slumped dramatically when global oil prices collapsed in 2014.
But that effect has now worked its way through the data and some i ncreases in oil and other commodities have seen inflation creeping up.
The CPI is a measure of core inflation.
While it offers a broad indication of the real cost of living, by Statistics NZ’s own admission it doesn’t really reflect the inflation experiences of individual New Zealanders. The New Zealand dollar gained yesterday as investors were cheered by stronger-than-expected inflation data although some profit-taking capped gains.
The kiwi rose to US72.84c yesterday from US72.47c at 8am and US72.44c late on Wednesday. It touched US73.12c after the CPI data was released. The trade-weighted index was at 79.42 from 79.18 after touching a high of 79.76.
Government figures showed the consumer price index rose 0.4 per cent in the December quarter for an annual increase of 1.3 per cent. Economists polled by BusinessDesk had been picking a quarterly pace of 0.2 per cent for an annual increase of 1.2 per cent, while the RBNZ’s own forecast was for consumer prices to rise 0.2 per cent in the December quarter for an annual increase of 1.1 per cent.
It marks the first time inflation is back in the central bank’s 1 per cent to 3 per cent target band in two years.
“The market was always going to react to the topside if the CPI number was better than expected and that’s exactly what it did,” said ASB head of institutional foreign exchange sales Tim Kelleher.
He said the market has now “given up on the idea of a rate cut in New Zealand” and the data was a clear contrast to Australia where the CPI was weaker than expected.
While Westpac Bank acting chief economist Michael Gordon was not expecting a rate cut “we don’t share the market’s enthusiasm for rate hikes”, he said in a note.
The kiwi rose to A96.14c from A96c cents late on Wednesday.
The local currency rose to 5.0099 Chinese yuan from 4.9816 yuan and gained to 67.68 euro cents from
67.50c on Wednesday. It fell against the pound, trading at 57.59p from 57.80p, but lifted to 82.53 Japanese yen from ¥82.27 the previous day.
New Zealand’s two-year swap rate rose 4 basis points to 2.41 per cent while the 10-year swaps rose 7 basis points to 3.52 per cent.
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