-Kim Mundy, ASB
More expensive fuel and vegetables were countered by lower meat prices and airfares in the three months to June, putting greater pressure on the central bank to generate prices pressure through further policy easing. New Zealand's CPI rose 0.4% in the June quarter, Statistics New Zealand reported, accelerating from 0.2% in the previous quarter, but still missing the 0.5% growth in prices economists had anticipated and the 0.6% CPI rate the Reserve Bank of New Zealand had forecast. On an annualized basis, inflation was flat at 0.4%, marking seven consecutive quarters that headline inflation has been below the RBNZ's 1-3% medium term target band. The RBNZ predicted in June that headline inflation would accelerate from 0.4% to 0.6% in the second quarter.
Meanwhile, the weaker-than-expected inflation reading mounts greater pressure on the central bank to spur prices pressures and prevent another fall in inflation expectations by loosening monetary policy. Before the data reported economists were undecided over whether or not the RBNZ would cut the cash rate to 2.0% at next month's meeting, with rapid house-price inflation and the risks housing pose to financial stability giving the central bank reason to hold off.
© Dukascopy Bank SA