18 Oct 2016

Low transport costs put brakes on inflation

4:05 pm on 18 October 2016

An already sluggish pace of inflation has slowed even further.

New Zealand money.

Photo: RNZ / Alexander Robertson

Official figures show the consumer price index (CPI) rose 0.2 percent in the three months to September 30, compared with 0.4 percent in the previous quarter.

"Higher housing-related prices were countered by lower transportation prices," Statistics New Zealand consumer prices manager Matt Haigh said.

Purchases of new houses rose 2 percent, while rates rose 3 percent and rents were up 0.4 percent.

That offset cheaper ACC vehicle levies, petrol prices, and new and used cars.

The average price of 91 octane petrol was $1.75 a litre in the September quarter - down from $1.78 in the June quarter, due to lower oil prices and a higher New Zealand dollar.

On an annual basis, inflation increased at a slower pace of 0.2 percent, compared with 0.4 percent in the years to the end of March and June.

Housing costs continued to be the main contributor, led by construction costs for new homes.

Rents, rates and property maintenance services, such as plumbing and painting, also rose during the year.

The cost of a new house in Auckland rose 7.9 percent - the highest annual increase since a record 8.5 percent yearly rise in September 2015.

The biggest decline came from transport costs, led by lower petrol prices and ACC vehicle levies.

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

If petrol was excluded, the CPI rose 0.8 percent for the year.

Economists were picking inflation had now troughed in the current cycle.

But most expect Reserve Bank to cut its benchmark interest rate at least once more, most likely next month, to 1.75 percent.

Tradable inflation remained flat, while non-tradeable rose 0.3 percent over the quarter.

ASB Bank economist Kim Mundy said the tradeable result was stronger than expected, despite falling petrol prices and higher New Zealand dollar.

"We had a few categories including household contents as well as audio visual equipment that came in stronger for the quarter and that did drive some of the upside surprise."

Annual inflation muted

Annual inflation increased at a slower pace of 0.2 percent, compared with 0.4 percent in the June and March years.

Housing continued to be the main contributor, led by construction costs for new homes, which rose 6.3 percent.

The cost of a new house in Auckland rose 7.9 percent, its highest annual increase since a record 8.5 percent yearly rise in September 2015.

"Capacity constraints in the construction sector appear to be biting," Ms Mundy said.

Rents, rates and property maintenance services, such as plumbing and painting, also rose during the year.

The biggest decline came from transport costs , led by lower petrol prices and ACC vehicle levies.

"Petrol prices in the September 2106 quarter were 11 percent lower than a year ago," Mr Haigh said.

If petrol is excluded, the CPI rose 0.8 percent for the year.

Inflation trough

Economists said inflation has hit a low in the current cycle, with last year' s lower oil prices due to fall out of the annual figures.

But most expect Reserve Bank to cut its benchmark interest rate at least once more, most likely next month, to 1.75 percent.

"It's still a muted quarterly outcome and it still does point towards the need for more OCR (official cash rate) cuts in the future," Ms Mundy said.

ASB expects the central bank governor will leave rates unchanged after that.

"The underlying picture suggests the economy is beginning to generate a little more inflation. Construction costs look set to remain a key driver of domestic inflation," Ms Mundy said.

However, Ms Mundy said if the dollar remained elevated, it could continue to dampen inflation pressures.

Get the new RNZ app

for ad-free news and current affairs