WELLINGTON, Jan 20 (Reuters) - Inflation in New Zealand
slowed in the fourth quarter, backing expectations the central
bank will cut interest rates sharply at its next meeting on Jan.
29.
The consumer price index (CPI) fell 0.5 percent in the three months to Dec. 31, to be 3.4 percent higher than a year earlier, according to official data on Tuesday.
Economists in a Reuters poll forecast the CPI to fall 0.4 percent on the previous quarter for an annual rise of 3.6 percent.
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KEY POINTS:
- Q4 CPI fall driven by lower petrol and food prices.
- Non-tradables inflation -- goods and services not facing foreign competition -- rose 0.8 percent from Q3 and 4.3 percent on a year ago.
- The central bank, which must keep annual inflation between 1 and 3 percent over the medium term, forecast Q4 fall of 0.3 percent and 3.6 percent annual rise.
- Food price index, which makes up 17.8 pct of CPI, fell 0.2 percent in December.
- Click on for full table
COMMENTARY:
CRAIG EBERT, SENIOR ECONOMIST, BNZ
'What's important in the figures is where some of those core measures have gone. Ex-petrol is up something like 1.7 percent. People might get excited about deflation but all we're really seeing is a lessening of inflation.'
'I don't think the RBNZ (Reserve Bank of New Zealand) will take too much out of these figures, some bits are pulling one way and some the other. I don't think this will change anyone's view. The real issue is whether the Reserve Bank is feeling comfortable with the amount of cuts the market is pricing in.'
STEPHEN HALMARICK, CO-HEAD OF MARKET ECONOMICS AT CITIGROUP
'It is a much bigger negative than we were expecting. This means were are expecting a 100 basis point cut by the Reserve Bank of New Zealand later this month and a reduction to 3.5 percent by March.'
ADAM CARR, SENIOR ECONOMIST, ICAP 'Clearly inflation globally is deteriorating as energy and commodity prices collapse. It's going to increase the likelihood of a 1 percent cut in interest rates but I still think they are going to go for something more moderate of 0.5 percent. Given the
0.8 percent rise in CPI for non
tradables, they will still be concerned about inflation to move too aggressively.
'Deflation -- it's not possible. For New Zealand, it is defined by global forces and because the Fed is printing money, it has effectively made the possibility of deflation so much lower that I would say it is not possible.'
ROBIN CLEMENTS, SENIOR ECONOMIST, UBS
'It was down by what the market expected, a bit weaker than the Reserve Bank forecast, driven mostly by petrol.'
'I don't think its going to be a major factor for the Reserve Bank. Headline inflation is tumbling: to the extent that was a constraint its being removed rapidly.
'The focus now is on the future, which is downside risk to inflation.'
MARKET REACTION:
- The New Zealand dollar was initially unmoved but then fell to around $0.5365/75 from around $0.5415/25 before the data. The yield on the March bank bill futures contract was unchanged at 3.71 percent. The official cash rate is 5.0 percent.
LINKS:
- The Statistics New Zealand Web site is: www.statistics.govt.nz
- For all New Zealand news and data, 3000 Xtra users can click on
BACKGROUND:
- The Reserve Bank of New Zealand last month cut its cash rate by a record 150 basis points, citing the sharply slower economy and global turmoil.
- Nine of 16 analysts in the latest Reuters poll expect the central bank to cut its cash rate by a further 100 basis points to 4.0 percent at its next meeting on Jan. 29
- The NZ Institute of Economic Research's fourth quarter survey of business opinion showed capacity utilisation, or the level of use of resources in the economy, easing to 88.8 from 90.8 percent. The survey also showed headline business sentiment matching from a 33-year low, while businesses view of their own outlook fell to a 29-year low.
- The economy shrank 0.4 percent in the third quarter, after falling into its first recession in a decade in the first half of 2008. The fourth quarter is also expected to show a contraction, with official forecasts predicting virtually no growth in 2009.
- Latest data from government agency Quotable Value and industry group Real Estate Institute of NZ showed house prices falling in December on the same period a year ago. Keywords: NEWZEALAND ECONOMY/INFLATION (Wellington newsroom +64 4 471 4234, fax +64 4 473 6212, wellington.newsroom@reuters.com) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
The consumer price index (CPI) fell 0.5 percent in the three months to Dec. 31, to be 3.4 percent higher than a year earlier, according to official data on Tuesday.
Economists in a Reuters poll forecast the CPI to fall 0.4 percent on the previous quarter for an annual rise of 3.6 percent.
****************************************************************
KEY POINTS:
- Q4 CPI fall driven by lower petrol and food prices.
- Non-tradables inflation -- goods and services not facing foreign competition -- rose 0.8 percent from Q3 and 4.3 percent on a year ago.
- The central bank, which must keep annual inflation between 1 and 3 percent over the medium term, forecast Q4 fall of 0.3 percent and 3.6 percent annual rise.
- Food price index, which makes up 17.8 pct of CPI, fell 0.2 percent in December.
- Click on for full table
COMMENTARY:
CRAIG EBERT, SENIOR ECONOMIST, BNZ
'What's important in the figures is where some of those core measures have gone. Ex-petrol is up something like 1.7 percent. People might get excited about deflation but all we're really seeing is a lessening of inflation.'
'I don't think the RBNZ (Reserve Bank of New Zealand) will take too much out of these figures, some bits are pulling one way and some the other. I don't think this will change anyone's view. The real issue is whether the Reserve Bank is feeling comfortable with the amount of cuts the market is pricing in.'
STEPHEN HALMARICK, CO-HEAD OF MARKET ECONOMICS AT CITIGROUP
'It is a much bigger negative than we were expecting. This means were are expecting a 100 basis point cut by the Reserve Bank of New Zealand later this month and a reduction to 3.5 percent by March.'
ADAM CARR, SENIOR ECONOMIST, ICAP 'Clearly inflation globally is deteriorating as energy and commodity prices collapse. It's going to increase the likelihood of a 1 percent cut in interest rates but I still think they are going to go for something more moderate of 0.5 percent. Given the
0.8 percent rise in CPI for non
tradables, they will still be concerned about inflation to move too aggressively.
'Deflation -- it's not possible. For New Zealand, it is defined by global forces and because the Fed is printing money, it has effectively made the possibility of deflation so much lower that I would say it is not possible.'
ROBIN CLEMENTS, SENIOR ECONOMIST, UBS
'It was down by what the market expected, a bit weaker than the Reserve Bank forecast, driven mostly by petrol.'
'I don't think its going to be a major factor for the Reserve Bank. Headline inflation is tumbling: to the extent that was a constraint its being removed rapidly.
'The focus now is on the future, which is downside risk to inflation.'
MARKET REACTION:
- The New Zealand dollar was initially unmoved but then fell to around $0.5365/75 from around $0.5415/25 before the data. The yield on the March bank bill futures contract was unchanged at 3.71 percent. The official cash rate is 5.0 percent.
LINKS:
- The Statistics New Zealand Web site is: www.statistics.govt.nz
- For all New Zealand news and data, 3000 Xtra users can click on
BACKGROUND:
- The Reserve Bank of New Zealand last month cut its cash rate by a record 150 basis points, citing the sharply slower economy and global turmoil.
- Nine of 16 analysts in the latest Reuters poll expect the central bank to cut its cash rate by a further 100 basis points to 4.0 percent at its next meeting on Jan. 29
- The NZ Institute of Economic Research's fourth quarter survey of business opinion showed capacity utilisation, or the level of use of resources in the economy, easing to 88.8 from 90.8 percent. The survey also showed headline business sentiment matching from a 33-year low, while businesses view of their own outlook fell to a 29-year low.
- The economy shrank 0.4 percent in the third quarter, after falling into its first recession in a decade in the first half of 2008. The fourth quarter is also expected to show a contraction, with official forecasts predicting virtually no growth in 2009.
- Latest data from government agency Quotable Value and industry group Real Estate Institute of NZ showed house prices falling in December on the same period a year ago. Keywords: NEWZEALAND ECONOMY/INFLATION (Wellington newsroom +64 4 471 4234, fax +64 4 473 6212, wellington.newsroom@reuters.com) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.