- Warren Potter, senior portfolio manager at AMP Capital Investors New Zealand
New Zealand inflation fell to the lowest level in 18 months in the final quarter of 2014 amid cheaper petrol and vegetables prices, providing room for the Reserve Bank of New Zealand to keep interest rates unchanged for longer than previously thought. The consumer price index slipped 0.3% in the three months ended December 31, compared with a quarterly rise of 0.3% in the third quarter, according to Statistics New Zealand. That resulted in annual inflation cooling to 0.8% from 1% in September, the lowest level since the second quarter of 2013 and below the central bank's target band of between 1%-3%. Petrol prices dropped 5.7% over the December quarter, while vegetables prices plummeted 14%. The RBNZ paused its tightening last September after four consecutive 25-basis-point interest rate lifts between March and July of last year, taking its official cash rate to 3.5%. The RBNZ estimated last month that the CPI would rise 0.1% in the December quarter, however, with this forecast being missed by a substantial distance, a revision of the bank's outlook for interest rates could be expected. In the December Monetary Policy Statement, the central bank said that interest rates would need to climb a further 80 basis points before the end of 2017, compared with the RBNZ's previous estimate of a further 100 basis-point lift. The central bank highlighted that inflation had been consistently lower than expected, which was an unusual development given the robustness of the economy.
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