-Jane Turner, senior economist at ASB
Food prices in New Zealand climbed in January, signalling stronger inflationary pressures at the beginning of the year, which could be offsetting a precipitous decline in oil prices, triggering an earlier-than-expected RBNZ's move on interest rates. The Food Price Index increased 1.3% in January following the 0.3% rise in the preceding month, according to Statistics New Zealand. On an annual basis, food prices rose 1.2% after climbing 1.0% in the previous month and 0.6% in November. Food is one of the largest components of New Zealand's inflation, making up 19% of the broader consumers price index, the measure used by the Reserve Bank of New Zealand to determine its monetary policy stance.
The CPI climbed just 0.8% last quarter, falling below the RBNZ's 1-3% target band for the first time in more than a year, in a large part due to the sharp plunge in petrol prices. Weaker inflationary pressures means the central bank is in no rush to increase interest rates. The RBNZ hinted monetary policy will remain neutral, in light of weaker than expected headline inflation, while warning last month that inflation could turn negative before returning to its target band. Therefore, majority of economists are expecting the RBNZ to maintain interest rates on hold throughout 2015 before reassessing its next move.
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