By James Glynn
SYDNEY–New Zealand consumer price inflation cooled in the second quarter as fuel costs continued to ease, but the pace of price gains across the economy is still enough to keep the Reserve Bank of New Zealand vigilant for some time yet.
The consumer price index increased 6.0% on-year, with the quarterly rate coming in at 1.1%, slightly above the rate forecast by economists of 1.0%, according to Stats NZ.
The data compare with a 6.7% on-year increase in the first quarter, and come amid signs that inflation pressures are ebbing away quickly in places like the U.S. and Canada.
The data also support the RBNZ’s recent decision to put interest rates on hold for now with the economy in a technical recession.
Still, there are concerning areas of prices growth that will keep the central bank on alert.
Food was the largest contributor to annual inflation. The increase was because of rising prices for vegetables, ready-to-eat food, and milk, cheese, and eggs, Stats NZ said on Wednesday.
Vegetable prices increased 23.3% over the year, while ready-to-eat food and milk, cheese, and eggs increased by 9.8% and 13.8% respectively.
The next largest contributor to the annual increase was housing and household utilities. The increase was because of rising prices for both construction and rents, Stats NZ added.
Prices for building a new house increased 7.8% from a year earlier in the second quarter following an 11.5% jump in the second quarter. Rents increased 4.2% on-year in the second quarter, following an increase of 4.3% in the second quarter.
“While inflation is lower, it is not low by any stretch of the imagination,” said Satish Ranchhod, senior economist at Westpac.
Measures of core inflation are continuing to run at rates of around 6% on-year, which points to lingering strength in underlying price pressures, he added.
The RBNZ recently signaled it expected to keep official interest rates at 5.50% for some time yet, but its on-hold stance is likely to be tested, with risks around inflation unlikely to pass until late next year, Ranchhod said.
Slightly offsetting price increases in the quarter was a decrease in transport costs. Prices for gasoline decreased 15.0% over the year, following an 8.3% on-year fall in the second quarter.
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