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New Zealand inflation remains below target for a sixth quarter

Monday, April 18, 2016 - 07:40

[WELLINGTON] New Zealand annual inflation accelerated in the first quarter, while remaining beneath the range the central bank targets, giving Governor Graeme Wheeler scope to cut interest rates further this year.

The consumers price index rose 0.4 per cent in the first quarter from a year earlier. The gain matched the median forecast of 10 economists. Prices rose 0.2 per cent from the fourth quarter, compared with a median forecast of a 0.1 per cent increase.

Benign inflation means there is little impediment to Mr Wheeler cutting the official cash rate if needed after he reduced it to a record-low 2.25 per cent last month.

Traders are betting on lower borrowing costs as falling oil prices and the New Zealand dollar's 6.5 per cent gain the past three months threaten to delay the return of the prices' gauge to the middle of the Reserve Bank of New Zealand's 1-3 per cent target range.

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The local dollar rose after the report, buying 69.06 US cents at 10.56am in Wellington.

Annual inflation accelerated from a 0.1 per cent pace in the fourth quarter, which was the weakest since prices fell in the year ended the third quarter of 1999.

Inflation has been below 1 per cent for six straight quarters and below 2 per cent since late 2011, prompting Mr Wheeler to take back a series of 2014 interest-rate increases.

The central bank on March 10 said "further policy easing may be required to ensure that future average inflation settles near the middle of the target range," while the central bank's bank- bill yield forecasts signaled one further cut.

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