Low inflation becomes double-edged sword for New Zealand households

New Zealand's consumer inflation continued tracking near zero in the March quarter, sparking a political row over the impact on the country's households.

The consumers price index (CPI) rose 0.2 percent in the last quarter, following a fall of 0.5 percent in the previous quarter, the government's Statistics New Zealand agency said Monday.

"Higher prices for cigarettes, food, and housing-related costs were countered by lower prices for petrol and air fares," consumer prices manager Matt Haigh said in a statement.

Excluding cigarettes and tobacco, which were subject to a 10-percent excise tax rise in January, the CPI showed a fall of 0.1 percent in the March quarter.

The CPI was up by 0.4 percent in the year to the end of March, up from a 0.1-percent increase for the year to the end of December 2015.

Housing-related prices continued to be the main upward contributor, up 3 percent in the year.

Finance Minister Bill English said the low inflation was helping households get ahead, with wages on average continuing to rise faster than the cost of living.

"We are in the unusual situation of having solid economic growth, more jobs and rising wages at the same time as very low interest rates and inflation," English said in a statement.

"Households with mortgages have the double benefit of low cost of living rises and lower mortgage servicing costs, which will be particularly welcome in regions with increasing house prices."

However, the opposition Green Party said low inflation hid the way the housing crisis -- which has been pronounced in Auckland, home to a third of the population --was hitting peoples' pockets and distorting the economy.

"Low oil prices mean the CPI is hiding the fact the cost of housing, especially rental housing in Auckland, is rising much faster than wages and other prices," Green Party finance spokesperson Julie Anne Genter said in a statement.

"If your rent is going up 5 percent but you're one of the almost 50 percent of New Zealanders who didn't get a pay rise last year, overall low inflation isn't going to help you."

Analysts said the figures could prompt the Reserve Bank of New Zealand to further cut the official cash rate (OCR) -- currently at 2.25 percent-- which would fuel house price rises.

The Reserve Bank, which has an inflation target range of 1 percent to 3 percent, is due to release its next OCR review next week.

An economic note from the ASB Bank forecast a cut in the OCR in June, but "we cannot entirely discount an April cut as the decision will remain a close call." Endit