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Housing crisis saddles New Zealand with low inflation, high interest rates

Xinhua, April 20, 2015 Adjust font size:

The prospects of New Zealand's central bank taking measures against the housing crisis worsened Monday with figures showing consumer price index (CPI) inflation falling to just 0.1 percent in the year ending March.

It was the smallest annual movement since September 1999, when prices decreased 0.5 percent over the year, according to the government's Statistics New Zealand agency.

The prices of tradable goods and services fell 2.8 percent in the year, led by a 15-percent dive in petrol prices, to their lowest level since June 2009.

Non-tradable goods and services rose 2.3 percent, the lowest annual increase since the September 2012 quarter.

Housing and household utility prices were up 3 percent in the year, with prices for newly built houses excluding land up 5 percent, rentals up 2.3 percent and electricity up 3.6 percent.

In the quarter ending March, the CPI fell 0.3 percent, following a fall of 0.2 percent in the previous quarter the first time two consecutive quarterly falls since the December 1998 and March 1999 quarters.

"The fall in the March quarter CPI, which last happened in 2001, was caused by an 11-percent fall in petrol prices. Without petrol, the CPI rose 0.3 percent," Statistics New Zealand prices manager Chris Pike said in a statement.

The 0.1-percent annual fall is well below the Reserve Bank of New Zealand's (RBNZ) inflation target range of 1 percent to 3 percent, and would normally entail a cut in the RBNZ's official cash rate, which is currently at 3.5 percent.

But with the RBNZ warning that a house price bubble in the biggest city of Auckland was threatening national financial and economic stability, commentators say it is unlikely to make credit cheaper.

Last week, RBNZ deputy governor Grant Spencer issued a thinly- veiled call for the government to implement a capital gains tax on housing, arguing too little was being done to rein in investor- driven demand.

The opposition Green Party said Monday that a lower official cash rate (OCR) would likely to lead to lower domestic interest rates, which would lower the costs of borrowing to help businesses, exporters and mortgage-holders.

However, the government's failure to adopt a capital gains tax would mean the RBNZ was unlikely to cut interest rates "for fear of adding fuel to the Auckland housing crisis," Green Party co- leader Russel Norman said in a statement. Endi