18 Jul 2017

Inflation slows to 1.7 percent

1:01 pm on 18 July 2017

Lower petrol prices have pulled back the rate of inflation.

Consumer prices: Building, rental vehicle, mobile phone, petrol, kumara, light switch

Photo: RNZ / 123RF

The consumer price index (CPI) was flat in the three months ended June, slowing the annual inflation rate to 1.7 percent from 2.2 percent, Statistics NZ said.

A fall in fuel costs and airfares offset higher prices for household basics such as food, rent, and power, while the housing boom lifted the price of a new house.

One of the main drivers of the lower annual rate was cheaper telecommunications products and services.

"Better technology is reflected as an effective price fall, even if the sticker price remains the same," said Statistics NZ's senior prices manager, Jason Attewell.

"Consumers are getting more bang for their buck through better speeds and capacity in their telecommunications plans, and improved features for cellphones, televisions, and laptops."

The relative strength of the New Zealand dollar also helped dampen inflation by making imported goods cheaper.

Housing rentals rose slightly (up 0.4 percent), held down by a 1.6 percent fall for Canterbury.

Prices for newly-built houses, excluding land, rose 1.8 percent this quarter.

Seasonally lower domestic airfares (down 14.5 percent), lower petrol prices (down 1.9 percent or and average 4 cents a litre), and seasonally lower prices for car rentals contributed most to a drop in overall transport costs.

"Holidays were cheaper all round in the June quarter, with prices for accommodation services down 8.1 percent, and package holidays down 1.4 percent," Mr Attewell said.

Higher vegetables prices pushed food inflation up 0.7 percent in the June 2017 quarter to 2 percent for the June 2017 year. Vegetables prices rose 19 percent for the year, with higher prices for lettuce, kumara, and broccoli.

The inflation numbers were below market expectations and Westpac acting chief economist Michael Gordon said that would dampen any notion of interest rate rises by the Reserve Bank in the foreseeable future.

"While the RBNZ has already been on the side of arguing that official cash rate hikes are a long way off, today's result should put a severe dent in market expectations that the RBNZ will be hiking rates by mid-2018."

The Reserve Bank has previously signalled that it expects to keep its cash rate at a record-low 1.75 percent percent at least until late 2019.

The New Zealand dollar fell more than half a cent against the US dollar on the soft numbers.

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