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New Zealand posts slowest annual inflation in more than 15 years

Monday, April 20, 2015 - 07:51
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New Zealand posted the slowest inflation in more than 15 years in the first quarter, supporting some traders' expectations that the central bank will cut interest rates later this year.

[WELLINGTON] New Zealand posted the slowest inflation in more than 15 years in the first quarter, supporting some traders' expectations that the central bank will cut interest rates later this year.

The consumers price index rose 0.1 per cent from a year earlier, the smallest increase since the third quarter of 1999, Statistics New Zealand said in Wellington Monday. The median forecast of 16 economists surveyed by Bloomberg was for a 0.2 per cent increase. Prices declined 0.3 per cent from the fourth quarter.

Benign inflation adds to signs Reserve Bank of New Zealand Governor Graeme Wheeler can keep the official cash rate unchanged at 3.5 per cent, while some traders bet he'll cut borrowing costs before the end of the year. Last month, the RBNZ signaled it didn't expect to raise rates until early 2017 as it faces an extended period of inflation below the bottom of its 1 per cent-to-3 per cent target range.

The New Zealand dollar fell after the report. It bought 76.83 US cents at 11 am in Wellington from 77 cents immediately before the release. There was about a 60 per cent chance of a rate cut by December, according to swaps data compiled by Bloomberg before the data was issued.

Prices dropped in the quarter after a 0.2 per cent fall in the three months through December, the first consecutive declines since 1999. Economists expected a 0.2 per cent fall.

Annual inflation slowed from 0.8 per cent in the fourth quarter. Inflation was slightly stronger than the zero per cent forecast by the RBNZ in its March 12 monetary policy statement. The central bank predicted inflation will accelerate slowly this year and next, reaching its 2 per cent target in the third quarter of 2017.

New Zealand joins other nations in experiencing benign inflation. Inflation in Australia was the slowest since mid-2012, a report April 22 will show, according to economists surveyed by Bloomberg.

BLOOMBERG