CPI stable in June quarter, annual rate drops to 1.5pc

The Consumer Price Index was unchanged in the June quarter, Statistics New Zealand said today.

The annual consumer price inflation rate fell to 1.5 per cent compared with 2.5 per cent in the March quarter.

Economists on average had forecast a 0.4 per cent rise in the quarterly rate and expected the annual rate to come out at 1.8 per cent.

The lower than expected inflation rate will encourage the Reserve Bank to lower interest rates by half a percentage point rather than a quarter when its reviews the official cash rate next on July 24.

"It enhances the prospect of rate reductions but I wouldn't push that argument too far," said UBS chief economist Robin Clements.

"Undoubtedly this will fuel easing expectations but I wouldn't overplay it. One, it might be something specific...two, we're talking about a policy that's operated on the medium-term view, which is a three-year view. What happened to inflation last quarter I wouldn't say is irrelevant but it's not overly important," he added.

The annual rise in consumer prices was the slowest in three years.

The rising New Zealand dollar curbed the price of petrol, cars and home appliances.

The New Zealand dollar's 21 per cent gain against the US dollar in the 12 months to June cut prices for imported goods sold by retailers.

The neutral quarterly result follows a 0.4 per cent rise in the March 2003 quarter and a 0.6 per cent rise in the December 2002 quarter.

SNZ said the main downward contribution to today's figure came from transportation prices which fell by 2.6 per cent reflecting lower prices for petrol and used cars.

Housing prices have continued to rise, climbing by 1.3 per cent and making the biggest upward contribution to today's figure. Prices for the purchase of new dwellings rose by 1.8 per cent while and rents rose by 1 per cent in the June quarter.

Another upward contribution came from household operation prices, largely influenced by higher electricity prices. Electricity rose by 1.8 per cent in the June quarter.

This is the first time since the March 1994 quarter that the CPI has recorded zero or negative growth since it fell by 0.2 per cent in the March 2001 quarter.

Meanwhile, the Food Price Index decreased by 0.4 per cent in the June quarter.

The decrease was driven by a 6.4 per cent fall in prices for fruit and vegetables particularly fresh vegetables. Otherwise, restaurant meals and ready to eat foods rose by 0.3 per cent as did grocery food, soft drinks and confectionery prices. On an annual basis food prices rose by 0.6 per cent in the year to June.

- NZPA