No inflation worries for rest of year for Reserve Bank, say economists

The Reserve Bank will not have to worry about inflation for the rest of the year, economists say.

Statistics New Zealand released its latest Consumer Price Index (CPI) figures today, with inflation increasing 0.6 percent in the June quarter, taking the annual inflation rate to 1.9 percent.

``Over 2009, the CPI will have far less relevance than previous years, given the dis-inflationary impact of the global recession,' Commonwealth Bank economist Chris Tennent-Brown said.

Due to this, economic recovery risks were more muted than the RBNZ had forecast, he said.

"There is some chance of further official cash rate cuts later in 2009, but increasingly that likelihood rests on when the RBNZ changes its view on the longer-term outlook for the NZ dollar, rather than any surprises in second quarter consumer price inflation."

ANZ economist Philip Borkin noted the increase in inflation was greater than his company, the Reserve Bank and the rest of the market were expecting.

Economists expected a 0.5 per cent rise in the quarter to an annual rate of 1.8 per cent, according to a survey by Reuters.

"Today's data does not alter our core view towards the RBNZ. We continue to expect [it] to keep rates on hold until the latter part of next year -- although the pace of decline in domestic inflation pressures will need to be monitored closely," he said.

He predicted inflation pressures to continue reducing, the unemployment rate continuing to climb until mid-next year and the economic recovery likely to be drawn out, as households concentrated on reducing debt.

Goldman Sachs JBWere strategist Bernard Doyle also expected the RBNZ to not be bothered by the issue of inflation "for the foreseeable future".

"Headline inflation is sliding lower, as it is in every other advanced economy. However, the pace is hardly jaw dropping," he said.

The annual CPI continued to fall from an 18-year high of 5.1 percent as recently as the September 2008 quarter, and from a 3.4 percent annual rate in December.

The largest increase in prices was for food, which rose 7.5 percent for the year to the June quarter .

Transport prices fell 6.6 percent in the year to the June quarter, with lower prices for petrol, down 17 percent, international air transport, down 20.7 percent, and diesel down 38.3 percent.

"If petrol and diesel prices had remained unchanged from the June 2008 quarter to the June 2009 quarter, the CPI would have increased 3 percent," government statistician Geoff Bascand said.

NZPA