Falling education prices keep inflation low

Cigarette prices rose this quarter

The consumers price index (CPI) rose 0.5 percent in the March 2018 quarter, Stats NZ announced today. This is in line with the market expectations, but slightly above those of most bank economists here.

Inflation for the year ended March 2018 was 1.1 percent, down from 1.6 percent for the year ended December 2017. This is at the very bottom end of the Reserve Bank’s targeted range of between 1-3 percent and well shy of the mid-term goal of an average 2 percent. Annual inflation was in line with the Reserve Bank's forecast.

A Bloomberg poll found the market expected a 0.5 percent increase, while economists from ANZ, ASB, Kiwibank and BNZ picked a 0.4 percent increase. Westpac’s expectation was in line with the market’s. The Reserve Bank had forecast a 0.6 percent increase this quarter.

The impact of Government policy drove changes to the CPI. The Government’s fee-free first-year policy saw prices for tertiary education plunge 16 percent in the March 2018 quarter. It was the first time that series had decreased since 2003. Overall education prices fell 5.6 percent, the largest downwards contributor to the CPI.

Government policy also drove price increases. The cost of cigarettes and tobacco rose 10 percent during the quarter due to the excise tax rise implemented in January. The average price for a packet of 25 cigarettes was $35.14 in March, compared with $31.68 last December. In the March 2010 quarter, the same packet cost just $13.46.

Unsurprisingly housing costs continued to rise. Housing and household utilities made the largest upward contribution to the 1.1 percent CPI increase for the year. The cost of newly built houses increased 4.7 percent in the March 2018 year. The increase was highest in Auckland and Wellington, which saw the price of newbuilds increased 5.8 percent and 3.2 percent respectively.

Rents also increased. Nationally, rents rose 2.1 percent over the year. Wellington rose fastest, with rents increasing 4.2 percent over the year. Auckland was lower at 2.5 percent and rents decreased 1.5 percent in Christchurch.