The inflation figures issued yesterday took many economists by surprise. For quarter 4 2011 the CPI was -0.3% (+0.4% was the pick by most analysts) whilst the annual CPI figures was +1.8% (+2.6% was the pick). One reason for this fall relates to the 2010 GST hike dropping out of the annual calculations. According to the BNZ there are other factors that are influencing the CPI:
1. International commodity prices – have been at historically low levels and have had the impact of reducing local food prices.
2. Strong NZ$ – cheaper imports especially for things like clothes, furniture etc.
3. Lower telecommincation prices – As Statistics New Zealand noted, “the fall in telecommunication services reflects lower Internet charges, due to increased data caps and lower prices for broadband plans, cheaper international calling rates from landlines, and lower cellphone service charges.”
4. Insurance – Insurance prices rose 0.7% in Q4, to be up 4.5% over the year. This was less than expected. Dwelling insurance has increased 17.5% over the
year. There will be no doubt higher prices in insurance prices in Q1 and Q2 2012, as the 1 February 2012 tripling in the EQC levy feeds into the CPI figures.
All this implies that despite inflation looking well-contained at present, we still harbour inflationary concerns looking into next year and beyond, as forecast growth pushes beyond what looks like a relatively low speed limit at present. Inflation is likely to become a problem at relative low rates of economic growth. This might all seem too far away to worry about at present, especially with today’s drop in headline prices and with so much to watch and consider internationally. But such things are well worth keeping an eye on and weighing up against other developments. Just like any self-respecting, forward-looking, central bank would do.
From the BNZ Economy Watch