- Nick Tuffley, ASB chief economist
New Zealand annual rate of inflation fell to the lowest level in 15 years in the first quarter, reinforcing the view that the Reserve Bank of New Zealand may consider lowering its interest rates later this year. The consumer price index climbed 0.1% from the previous year, the smallest gain since the third quarter of 1999, according to Statistics New Zealand. Economists, however, had called for a 0.2% increase. Measured on a quarterly basis, cost of living dropped 0.3% from the three months through December, the second consecutive negative quarterly reading. The quarterly decrease in the CPI was driven by an 11% decline in petrol prices.
Tepid inflation adds to signs Reserve Bank of New Zealand Governor Graeme Wheeler can keep the official cash rate unchanged at 3.5%, while some analysts bet the Governor will lower borrowing costs before the end of the year. Last month, the RBNZ signalled it did not plan to raise rates until at least early 2017 as it faces a prolonged period of inflation below the bottom of its 1%-3% target range. The RBNZ has kept its cash rate at 3.5% since last September. The New Zealand economy is expected to grow around 3% annually for the next couple of years and the RBNZ's March statement predicted inflation gradually climbing to the middle of its target band around the end of 2016.
© Dukascopy Bank SA