New Zealand's consumer price index rose 1.7 percent on the year in the three months to June, down from 2.2 percent in the three months to March and falling short of the consensus forecast of 1.9 percent. Headline inflation has now been within the Reserve Bank of New Zealand's target range of 1.0 percent to 3.0 percent for the three consecutive quarters after eight consecutive quarters below this range. The consumer price index was flat on the quarter in original terms (down 0.1 percent in seasonally adjusted terms), compared with an increase of 1.0 percent in the three months to March and the consensus forecast of 0.2 percent.
The decline in headline inflation last quarter reflects a weaker increase in transport costs, up 1.2 percent in the three months to June compared with an increase of 3.5 percent in the three months to March. This was driven by a smaller increase in petrol prices and lower vehicle relicensing fees. Costs related to housing and household utilities also rose at a slightly pace, down from 3.3 percent to 3.1 percent. In quarter-on-quarter terms, higher prices for housing and household utilities and food were offset by lower prices for transport and communication.
Annual inflation for tradable goods and services (that is, those that are imported or compete with foreign goods and are impacted by foreign price changes and exchange rates) weakened from 1.6 percent in the three months to March to 0.9 percent in the three months to June. Annual inflation for non-tradable goods and services (that is, those not subject to foreign competition, for which prices are primarily determined by domestic demand and supply conditions) eased slightly from 2.5 percent to 2.4 percent.
At the RBNZ's last policy meeting, held mid-May, officials noted that the increase in headline inflation seen in the three months to March was mainly due to higher petrol and food prices. Officials argued that these effects would be temporary and that there would likely be some variability in headline inflation over the year ahead. The drop in headline inflation in the three months to June is broadly in line with this view and is also consistent with the RBNZ's forecast for headline inflation to remain close to the mid-point of its target range over the medium-term. Officials at the May meeting stated that policy will remain accommodative for a "considerable period" suggesting there is little chance of a change in policy settings at the next policy meeting scheduled for August 10.