Consumer prices rose by a modest 0.3% in the March quarter, bringing annual inflation down to 3%, back (just) within the RBNZ’s 1-3% target band.
This situation is unlikely to last long – disinflation will be the dominant theme of 2009, and the RBNZ will soon face a breach of the lower edge of the band.
The details of the CPI were much in line with our expectations, with quarterly inflation being boosted by a 1.2% increase in food prices, along with the usual annual increases in tobacco excise tax and education fees. Food price inflation has remained stubbornly high, although we do anticipate some easing over coming quarters. Dampening inflation in Q1 was a 16.5% drop in international airfares, substantially more than the usual seasonal decline. This helped pull down prices in the overall transport group by 1.5%, despite a 3.4% increase in car prices.
The tobacco tax increase and education fee increases helped lift non-tradeable prices by 0.7%, although this was a tick less than we or the RBNZ expected.
This is the genuinely weakest quarterly non-tradeable result since 2002 (setting aside the second half of 2007, which was affected by government subsidies for healthcare and early childhood education).
A 0.1% downside surprise on nontradeables inflation is hardly earthshattering news for the RBNZ, but it is interesting to note that the housing components were soft across the board. Rents rose just 0.3%, property maintenance costs were up 0.2%, while the purchase of new housing component was flat. Meanwhile, prices for real estate services fell 1.1%. The long-sought easing in housing-related inflation has now arrived.
