18 Jan 2013

Lower inflation prompts call to cut interest rates

10:11 pm on 18 January 2013

Low inflation figures have prompted an employers group to call for the Reserve Bank to cut interest rates to stimulate exports.

But an economist believes the central bank is unlikely to cut the Official Cash Rate.

Annual inflation edged up to 0.9% at the end of 2012, but remains below the bottom of the bank's target range of between 1% and 3%.

Employers and Manufacturers' Association's chief executive Kim Campbell says that should be a green light to cut interest rates.

Mr Campbell dismissed fears that cutting interest rates from their already record lows would further inflame the hot Auckland housing market.

However, economist Michael Gordon says there are signs that inflation is picking up and the Reserve Bank is unlikely to increase pressure on prices further by cutting the cash rate.

The New Zealand dollar fell more that 0.5 cents against the US dollar immediately after the announcement and was at US83.5 cents on Friday evening.

Vegetables drive down cost of living

Cheaper vegetables drove down the cost of living in the final three months of last year.

The Consumers Price Index fell 0.2% in the December quarter, its first quarterly fall in a year.

Food prices fell 1.8% to the end of 2012, largely due to a 16% fall in the price of vegetables.

Household contents were the next biggest contributors to the fall in living costs, down 1.8%, due mainly to lower prices for furniture.

Statistics New Zealand says discounting by furniture retailers increased in the December quarter when compared with the previous three months.

Annual inflation for household utilities and housing was 3%, with prices electricity, rates, rents in earthquake-hit Canterbury and the price of newly built houses up by more.