18 Apr 2016

Cigarette prices push up inflation

1:53 pm on 18 April 2016

Inflation has edged up as higher cigarette prices offset cheaper fuel.

cigarette

Photo: 123RF

The Consumers Price Index (CPI) rose 0.2 percent in the three months ending March, reversing the previous quarter's 0.5 percent decline. That pushed up the annual rate to 0.4 percent.

Statistics New Zealand consumer price manager Matt Haigh said prices for cigarettes, food, rents and newly built houses rose in the March quarter, while petrol and air fares fell.

Cigarettes and tobacco jumped 9.4 percent following an increase in excise duty in January.

"The average price of a pack of 25 cigarettes was $28.79 in the March 2016 quarter, more than double the price from six years ago when annual 10 percent excise tax increases were introduced," Mr Haigh said.

Taking out cigarettes and tobacco, inflation actually fell 0.1 percent in the quarter.

Petrol prices fell 7.7 percent, the largest downward contribution for the quarter.

Low oil prices and intense competition also contributed to lower airfares. International airfares fell 12 percent and domestic airfares 4.8 percent.

Annual inflation pushed up

On an annual basis, inflation increased 0.4 percent, led by higher rents and building costs.

That followed a 0.1 percent in the December 2015 year, the lowest annual rate since 1999.

"Annual CPI inflation firmed to 0.4 percent, but was still the sixth consecutive out-turn below 1 percent and 18th successive sub-2 percent out-turn, "ANZ senior economist Mark Smith said.

Nevertheless, economists said core inflation pressures were rising.

The trimmed mean measures of core inflation rose, with the 10 percent trimmed measure lifting from 0.4 percent to 0.9 percent on an annual basis. The weighted median measure remained steady on an annual basis (1.5 percent).

"Overall, the data published by Stats NZ suggest that although core inflation pressure are still low, they are starting to lift, which may provide the RBNZ with confidence that inflation expectations will also stabilise and recover," ASB chief economist Nick Tuffley said.

While construction cost increases remain strong, the effect of a weaker dollar is starting to come through.

"We are finally starting to see some pass-through from last year's exchange rate decline into higher prices for certain tradable goods," Westpac senior economist Michael Gordon said.

Additional OCR cut expected

Analysts still expect the Reserve Bank to cut the Official Cash Rate (OCR) further, though the case for a reduction later this month has weakened.

"This data detracts from the case for an April OCR cut. The details of the data will constitute a small upside surprise from the RBNZ's perspective. Non-tradables inflation, which is generally considered more important for monetary policy, was stronger than the RBNZ expected," Mr Gordon said.

The Reserve Bank will review the OCR on 28 April.

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