25 Jan 2018

NZ dollars falls in unexpected inflation rate drop

1:42 pm on 25 January 2018

Inflation pressures have unexpectedly slowed as cheaper food, cars and appliances all but offset more expensive petrol and housing costs.

no caption

Photo: 123rf

Official numbers show consumer prices rose 0.1 percent in the three months ended December, compared with 0.5 percent in the September quarter.

"Retail prices fell by more than usual in the December quarter, contributing to lower inflation than widely expected," Statistics New Zealand prices manager Jason Attewell said.

Petrol prices were up 6.1 percent in the quarter and building costs rose 1.3 percent, but plenty of fresh fruit and vegetables helped to lower food prices by 1.7 percent, and the price of cars, clothing and household appliances were all lower.

That pushed the annual inflation rate to 1.6 percent from the previous quarter's 1.9 percent, which most economists expected would remain steady.

The numbers were well below expectations and sent the New Zealand dollar tumbling by nearly a full cent against the US and Australian dollars, as investors bet the chances of the Reserve Bank raising interest rates this year have receded.

"This release (is) raising numerous questions about the strength of inflation moving forward ... it reinforces that there is no need for the [Reserve Bank] to raise interest rates anytime soon," ASB economist Kim Mundy said.

Get the new RNZ app

for ad-free news and current affairs