NZ inflation surprisingly strong in first quarter, causes mostly temporary

Danny Woods
April 20, 2017

Ross Weston, a senior trader at Kiwibank, said the yield on New Zealand's longer dated bonds rose a few more basis points than their USA counterparts today in the wake of the inflation data but noted that any moves will be capped by buyers coming in if kiwi bonds look more attractive on a yield basis. This brings the headline inflation rate to its highest in over five years.

SNZ said that petrol prices increased by 4.1%, while those for rents rose 0.8%.

The spread between New Zealand's longer-dated bonds and their U.S. equivalent increased as higher-than-expected domestic inflation helped solidify market expectations the central bank will be lifting rates sooner that it's forecasting.

The annual pace of inflation moved back above the middle of the Reserve Bank of New Zealand's (RBNZ) 1 to 3 per cent target band for the first time since 2011.

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Excluding petrol and tobacco products, annual CPI rose by a smaller 1.5%.

The Bank's April 2017 monetary policy review, released last week, said herd rebuilding was driving up beef prices.

"Additionally, the pass-through from the exchange rate to domestic prices has been weak in recent years". The central bank kept interest rates at a record low 1.75 per cent in March and reiterated that they are expected to stay at that level "for a considerable period". 6 per cent on the quarter and 3.3 per cent on the year. "Petrol prices in New Zealand are closely linked to global oil prices, and cigarettes and tobacco taxes rise in the March quarter each year". Rental prices were more sedate, with a quarterly increase of 0.8 per cent for an annual gain of 2.3 per cent. Household energy, which includes electricity, gas and solid fuels inched up 0.1 per cent on the quarter and 2.3 per cent on the year.

The NZD/USD is up 0.51% at.7038 while the AUD/NZD is down 0.5% at 1.0643.

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