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Low CPI inflation bolsters expectation of New Zealand interest rate cut

Xinhua, October 18, 2016 Adjust font size:

Inflation in New Zealand remained muted in September quarter, according to figures from the government statistics agency Tuesday, prompting analysts to forecast new interest rate cuts next month.

The consumers price index (CPI) inflation rate was 0.2 percent in the September quarter, following inflation of 0.4 percent in the June quarter, according to Statistics New Zealand.

"Higher housing-related prices were countered by lower transportation prices," consumer prices manager Matt Haigh said in a statement.

Housing and household utilities prices rose 1.1 percent in the September quarter, driven by higher prices for purchase of new housing, but transport prices were down 3 percent.

For the year to the end of September, CPI inflation was 0.2 percent, following rises of 0.4 percent for both the June and March years, and a 16-year low of 0.1 percent in the year to December 2015.

Housing-related prices continued to be the main upward contributor, up 3.2 percent in the year, while transport prices made the largest downward contribution for the year, down 6.7 percent.

"Petrol prices in the September 2016 quarter were 11 percent lower than a year ago," Haigh said.

Petrol made up around 5 percent of the CPI basket.

The main opposition Labour Party said the figures painted a troubling picture of the New Zealand economy as the country's housing crisis rumbled on.

The cost of housing for most New Zealanders was rising far in excess of inflation, but more than 40 percent of New Zealand workers received no pay rise last year, Labour finance spokesperson Grant Robertson said in a statement.

The Reserve Bank of New Zealand (RBNZ) had failed to hit its inflation target range of 1 percent to 3 percent since 2011, but had kept interest rates high for fear of further fueling the overheated housing market, he said.

An economic note from the ASB Bank said the CPI figures were stronger than expected, but inflation remained muted.

The RBNZ would take comfort from the fact that key measures of core inflation were steady over the quarter, even as headline annual inflation fell slightly, it said.

The ASB Bank expected the RBNZ to cut the official cash rate currently at 2 percent at its next review next month and forecast a "risk of a further cut in 2017, but this CPI outcome does not add to the case for such a move." Endit