New Zealand food prices fall in December, pointing to weaker Q4 inflation

[WELLINGTON] New Zealand's food prices dropped for the fourth month in a row in December, pointing to a weaker outlook for consumer price inflation that weighed on the local dollar.

Food prices fell 0.8 per cent on the month, led by a drop in the cost of groceries, Statistics New Zealand said on Monday.

That sparked a sell-off in the New Zealand dollar, which fell to US$0.7234 from around US$0.7253 before the release. The currency last stood at US$0.7240.

Given that food prices make up almost a fifth of the consumer price index, economists said the fall could flow through into weaker CPI in the fourth quarter.

"It's a larger fall than we thought ... all things being equal, it does add some downside risk to our (CPI) forecast," said Philip Borkin, senior economist at ANZ Bank.

Fourth-quarter CPI data, due out on Jan 25, will be extremely closely watched by the Reserve Bank of New Zealand as it considers its first monetary policy decision of the year in early February.

The bank has signaled it will keep the official cash rate on hold at a record low of 1.75 per cent for years as it waits for tepid inflation to stabilise around 2 per cent.

Any further signs of weakness in the CPI would add to the bank's impetus to keep rates on hold.

On an annual basis, Thursday's release showed food prices were up 2.3 per cent.

The monthly fall was largely because of retailers' pre-Christmas discounts on groceries, which fell 1.3 per cent with chocolate prices sinking 8.4 per cent.

REUTERS