Annual inflation is still running low at 1.5 percent, according to CPI data released by Statistics NZ this morning.
The figure represents a marked improvement on the anaemic 1.1 percent registered in the year to March 2018. It is still a fair way off the Reserve Bank’s 2 percent midpoint, but in line with the 1.5 percent forecast by the bank in May's monetary policy statement.
Inflation over the June quarter was 0.4 percent, in line with the Reserve Bank’s forecast but lower than the 0.5 percent market forecast. Last quarter the CPI was 0.5.
The disappointing figure could put pressure on the bank to cut rates, although most forecasters project inflation will continue to track upwards towards two percent over this year and next year. A rate change is not forecast before next year.
Housing and household utilities drive inflation
Statistics NZ said the largest contributor to inflation was higher prices for housing and household utilities, which rose 0.9 percent over the quarter and 3.1 percent in the year to June 2018.
There was marked movement in housing-related costs, with rents rising 0.8 percent over the quarter and 2.5 percent in the year.
The construction of new dwellings (excluding land) rose a hefty 1.1 percent in the quarter and 3.9 percent in the year.
The regions saw the largest movement in construction costs. In Auckland and Wellington, construction costs rose 0.6 percent and 0.7 percent respectively over the quarter, half the 1.2 percent registered across the rest of the North Island.
Rising costs are further evidence that the construction industry is at capacity.
The Government hopes streamlining immigration for skilled construction workers and the increased use of prefabs and other economising techniques in KiwiBuild homes will bring the spiralling cost of construction under control. Should this fail, KiwiBuild could add further demand to an industry already at capacity, pushing up prices.
Rising and falling costs
Fuel costs also rose, with petrol prices rising 3.2 percent over the quarter. This does not capture the fuel taxes introduced on July 1, which will undoubtedly factor into inflation over the next quarter.
The biggest downward contributor to the CPI was the falling price of recreation and culture, which fell 1.4 percent over the quarter. Cultural services fell 4.7 percent, and subscriber TV tumbled 7.2 percent.
This reflects Sky TV’s decision to radically cut the price of its packages in response to the threat from online streaming services.
Subscriber TV is in the top 25 largest items in the CPI.
The Reserve Bank will give its view on the inflation in its next monetary policy statement in August.