New Zealand Inflation Grows Less Than Expected in 4Q -- Update

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Growth in New Zealand's consumer prices unexpectedly slowed in the final quarter of 2017 as a sharp drop in the price of retail goods outweighed the effect of more expensive gasoline and air fares.

The consumer price index increased 0.1% from the previous quarter and by 1.6% from a year earlier, Statistics New Zealand said Thursday, following a 0.5% rebound in the third quarter that brought the annual gain to 1.9% on year.

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Economists polled by The Wall Street Journal had expected prices to grow by 0.4% from the previous quarter, and remain steady at 1.9% compared with the previous year.

The latest result undershot the Reserve Bank of New Zealand's 0.3% forecast for the quarter, making it increasingly unlikely the central bank will budge from its neutral stance any time soon. The outcome leaves inflation further away from the midpoint of its 1%-3% target range.

The central bank has indicated it doesn't expect to raise interest rates until the latter half of 2019.

These figures incorporated new weightings by Stats NZ, a factor that may have contributed to the sharper-than-expected change.

The data showed transport costs were the biggest factor pushing up the index with a gain of 3.2% in the quarter, influenced by a 6.1% rise in the price of gasoline and an 11% increase in air fares.

"Petrol prices were up in the December quarter, following two quarters of falls," Stats NZ prices senior manager Jason Attewell said. "Rising oil prices and a falling exchange rate pushed prices up sharply between July and November this year," he said.

Food prices fell 1.7%, with seasonally lower vegetable prices down 19% in the quarter.

"Retail prices fell by more than usual in the December 2017 quarter, contributing to lower inflation than widely expected," Mr Attewell said. "Changing retail pricing strategies have led to lower prices for a range of household items, while specials drove new car prices down 6.2%," he said.

Write to Ben Collins at ben.collins@wsj.com

WELLINGTON--Growth in New Zealand's consumer prices unexpectedly slowed in the final quarter of 2017 as a sharp drop in the price of retail goods outweighed the effect of more expensive gasoline and air fares.

The consumer price index increased 0.1% from the previous quarter and b1.6% from a year earlier, Statistics New Zealand said Thursday, following a 0.5% rebound in the third quarter that brought the annual gain to 1.9% on year.

The New Zealand dollar fell from US$0.743 to US$0.733 after the data was released.

Economists polled by The Wall Street Journal had expected prices to grow by 0.4% from the previous quarter, and remain steady at 1.9% compared with the previous year.

The latest result undershot the Reserve Bank of New Zealand's 0.3% forecast for the quarter, making it increasingly unlikely the central bank will budge from its neutral stance any time soon. The outcome leaves inflation further away from the midpoint of its 1%-3% target range.

The central bank has indicated it doesn't expect to raise interest rates until the latter half of 2019.

"This release suggests that inflation has yet to stage a convincing comeback in New Zealand, outside of the housing sector," said ASB economist Jane Turner in a research note.

"And, with this release raising numerous questions about the strength of inflation moving forward," especially when considering the stronger-than-expected economic backdrop of recent years it reinforces that there is no need for the RBNZ to raise interest rates anytime soon, she said.

These figures incorporated new weightings by Stats NZ, a factor that may have contributed to the sharper-than-expected change.

The data showed transport costs were the biggest factor pushing up the index with a gain of 3.2% in the quarter, influenced by a 6.1% rise in the price of gasoline and an 11% increase in air fares.

"Petrol prices were up in the December quarter, following two quarters of falls," Stats NZ prices senior manager Jason Attewell said. "Rising oil prices and a falling exchange rate pushed prices up sharply between July and November this year," he said.

Food prices fell 1.7%, with seasonally lower vegetable prices down 19% in the quarter.

"Retail prices fell by more than usual in the December 2017 quarter, contributing to lower inflation than widely expected," Mr Attewell said. "Changing retail pricing strategies have led to lower prices for a range of household items, while specials drove new car prices down 6.2%," he said.

Write to Ben Collins at ben.collins@wsj.com

(END) Dow Jones Newswires

January 24, 2018 18:15 ET (23:15 GMT)

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