NZ CPI on the rise

According to the BNZ Markets Outlook publication the reasons for the higher inflation is not a secret:

1. The well documented international commodity boom driving up domestic fuel and food prices.
2. Last year’s hike in GST is still in the annual calculations as is this quarter’s 10% tobacco excise duty increase (over and above the usual annual indexation). Annual inflation rose to 4.5% in Q1 from 4.0% in Q4.

But not all prices are rising. While there is currently much discussion around domestic consumers facing higher food prices, there are some other offsetting influences. New Zealand is a major food exporter. When the world buys our primary products at higher prices, the New Zealand dollar tends to rise as the outlook for the economy improves. This means domestic consumers (and producers) do not face the full extent of world price increases. Moreover, a higher NZD tends to push other prices down.

Statistics New Zealand suggested there was no material impact on the Q1 CPI from the Christchurch earthquake, at least in terms of data collection. For the record, Statistics New Zealand suggested there was some potential for the quarterly movement to be ‘slightly flattened’. The expected economic improvement through 2011 suggests that the RBNZ will begin removing some monetary stimulus by years end to prevent underlying inflation from lifting beyond its currently contained state.

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