23 Oct 2020

Rise in consumers price index softer than expected

12:25 pm on 23 October 2020

Higher prices for vegetables and a rebound in the cost of public transport, led to a 0.7 percent rise in the consumers price index in the September quarter, but the rise was softer than expected.

Organic fresh produce / vegetables at market.

An 18 percent rise in vegetable prices was a result of Covid-19 uncertainty. Photo: 123RF / Rawpixel Ltd.

Annual inflation has edged down to 1.4 percent.

The increase was smaller than expected, with the Reserve Bank's forecast for CPI at 1.1 percent.

Stats NZ prices senior manager Aaron Beck said an 18 percent rise in vegetable prices was a result of Covid-19 uncertainty.

"Because restaurants and cafes were shut during Covid alert levels 3 and 4 in April, many tomato growers delayed or reduced planting their crops during this time because they were not sure if demand would recover."

"This led to a supply shortage in the September quarter."

Prices for passenger transport services rose 0.4 percent in the September quarter, following a fall in the June quarter.

"Some goods and services like public transport were free in the June quarter during Covid-19 restrictions, many of these prices have since returned to around pre-Covid levels."

The latest annual increase in domestic inflation was also influenced by higher prices for cigarettes and tobacco, rentals for housing, and purchase of new housing.

The rises however, were offset by price falls in other areas.

Cellphone prices fell in the September quarter, driving down prices for telecommunications equipment by 15 percent in the three months, reversing rises in the first half of the year.

The 2020 CPI review updated the basket of goods and services in the CPI and the relative weight of each item. E-cigarettes and exercise equipment are now measured, while some older technology such as cordless phones are no longer measured.

Kiwibank chief economist Jarod Kerr said Covid-related caution has had an impact, prices were simply not rising as much as expected, and the outlook for inflation was weaker as a result.

"The overall inflation picture in today's report is weak. The third quarter release will also be of some concern for the RBNZ, who like us, is expecting to see inflation fade quickly from here. We forecast inflation to drop towards 0 percent next year."

"The RBNZ has a mandate to meet. But employment and inflation are clearly drifting further away from target. Indeed, the balance of risks remain skewed toward deflation, if no further policy action. With both employment and inflation drifting further away from target, more stimulus is needed and is expected to come."

ASB economists were also surprised by the numbers, adding it was unclear whether the soft CPI result was due to more subdued than expected inflationary pressure or the CPI rebase that incorporated the new expenditure weights.

Last quarter, which included the lockdown period, CPI fell 0.5 percent largely due to a sharp drop in petrol prices.

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