Economic Week
April 21, 2017
by Nick Clark
Inflation is on the up, according to Statistics NZ’s quarterly Consumer Price Index. The CPI recorded a 1.0 percent increase in the March quarter, pushing annual inflation to 2.2 percent. Six months ago the annual rate was just 0.4 percent.
The March quarter increase was bigger than expected and it was the biggest quarterly increase since December 2011, the quarter which captured the GST increase from 12.5 to 15 percent. This was also the first time annual inflation has been above 2 percent since the year ended September 2011, again a period heavily influenced the GST increase.
Food, petrol and tobacco prices all made large positive contributions to the quarterly movement. Food and petrol prices reflect international commodity prices and (in the case of food) seasonal factors and they can be volatile, while tobacco is always heavily influenced by the annual excise tax hikes which take place in March quarters. Housing also made an upward contribution which is no surprise given housing pressures.
The Reserve Bank’s forecast for inflation for the year ended March was considerably lower at 1.5 percent. It shouldn’t be too perturbed by the higher than expected figure. For some time now the Reserve Bank has been concerned about inflation being too low rather than too high. At 2.2 percent it is now only a little higher than the mid-point of its 1-3 percent target range. Expectations are that inflation will settle at around 2 percent rather than jump higher still.
Most economists expect no change to the Reserve Bank’s ‘wait and see’ approach to the OCR but the odds of the next move being a cut will have diminished. The markets seem to think so with the NZ Dollar appreciating in the wake of the CPI release.
Also up this week were dairy prices which rose 3.1 percent in this week’s Global Dairy Trade auction. The two largest products by volume enjoyed solid gains with whole milk powder up 3.5 percent and skim milk powder up 7.1 percent. Other commodities were mixed with ups and downs.
Overall, the average selling price was $US3,139 and 22,927 tonnes of product was sold.
This week’s increase was the third in a row but the GDT Price Index remains 6 percent below its most recent peak in early December. It is up 53 percent on the same time last year though.
Food prices dropped 0.3 percent in March, according to Statistics NZ’s monthly Food Price Index. The month-on-month drop was mainly due to seasonally lower fruit and vegetable prices, which were down 3.0 percent.
Meat, poultry and fish prices were up 0.3 percent, with sheepmeat down 2.6 percent and beef down 0.8 percent. Grocery food prices rose 0.2 percent, with cheese up 3.0 percent and fresh milk up 0.3 percent.
For the year ended March 2017 food prices increased 1.3 percent. Grocery food prices were up 2.2 percent for the year, with higher prices for most dairy products. Fresh milk prices increased 6.5 percent and there were also big increases for cheese (up 11 percent) and butter (up 27 percent).
Fruit and vegetable prices increased 2.6 percent for the year but prices for meat, poultry, and fish decreased 1.5 percent. Sheepmeat prices were up 1.8 percent while beef prices were down 0.5 percent.
Exchange Rates
|
NZ Dollar versus
|
This Week (20/4/17)
|
Last Week (13/4/17)
|
Last Month (20/3/17)
|
Last Year (20/4/16)
|
|
US Dollar
|
0.7034
|
0.6994
|
0.7029
|
0.7017
|
|
Australian Dollar
|
0.9375
|
0.9260
|
0.9124
|
0.9008
|
|
Euro
|
0.6568
|
0.6556
|
0.6539
|
0.6173
|
|
UK Pound
|
0.5506
|
0.5566
|
0.5677
|
0.4878
|
|
Japanese Yen
|
76.70
|
76.06
|
79.16
|
76.47
|
|
Chinese Renmimbi
|
4.8462
|
4.8089
|
4.8560
|
4.5356
|
|
Trade Weighted Index
|
76.65
|
76.12
|
76.49
|
73.63
|
Source: Reserve Bank of NZ
Wholesale Interest Rates
|
|
This Week (20/4/17)
|
Last Week (13/4/17)
|
Last Month (20/3/17)
|
Last Year (20/4/16)
|
|
OCR
|
1.75%
|
1.75%
|
1.75%
|
2.25%
|
|
90 Day Bank Bill
|
1.96%
|
1.96%
|
1.95%
|
2.33%
|
|
10 Year Government Bond
|
2.98%
|
2.95%
|
3.25%
|
2.87%
|
Source: Reserve Bank of NZ