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New Zealand Economic and Financial Overview 2014

Prices and Costs

Consumer price inflation declined over the early 1990s as monetary policy directed at maintaining price stability (introduced in 1989) took effect. Since September 1991, inflation has averaged 2.2% per annum.

Annual Consumers Price Index (CPI) inflation increased significantly in the December quarter 2010 as an increase in the rate of goods and services tax from 12.5% to 15% in October 2010 was passed on to consumers. The CPI rose 2.3% in the quarter, taking annual inflation to 4.0%, above the RBNZ's target range, although the Policy Targets Agreement allows the RBNZ to look through administrative price increases. Inflation increased further during 2011, rising to 4.6% on an annual basis in September before falling to 1.8% in the year to December 2011. This fall was mainly the result of the GST rate rise falling out of the calculation, but falls in food and communication prices also contributed.

Over 2012, CPI inflation continued to ease, with annual inflation falling to 0.9% in the December quarter. This was largely a reflection of the strong NZD that depressed tradables prices. The New Zealand dollar continued to appreciate over the first half of 2013, which further suppressed tradables inflation, with annual CPI inflation dropping to 0.7% in the June 2013 quarter. CPI inflation was 0.1% in the December quarter of 2013, taking annual inflation to 1.6%, as tradables inflation was less negative and non-tradables inflation lifted. Annual inflation is expected to increase towards the mid-point of the band over 2014, in line with strong domestic demand, capacity constraints associated with the Canterbury rebuild and a moderation of the exchange rate.

Growth in the index of salary and ordinary-time wage rates declined rapidly from 3.4% in the year to March 2009 to just 1.5% growth at the start of 2010. Since then it has crept up, reaching 2.0% over late 2011 and early 2012 before easing again to 1.6% in the September 2013 year with a low inflation environment putting less pressure on wage growth.

The following table shows on a quarterly basis the Terms of Trade Index, the Producers Price Index, the Consumers Price Index, and the Labour Cost Index and, in each case, the percentage change over the same quarter of the previous year.

Table 7 - Price and Cost Indices
Year Month Terms of
Trade Index1
Annual %
Change
Producers
Price Index2
Annual %
Change
Consumers
Price Index3
Annual %
Change
Labour Cost
Index4
Annual %
Change
2009 March 1,185 (5.0) 965 4.7 1,075 3.0 997 3.4
  June 1,074 (13.5) 965 (1.2) 1,081 1.9 1,000 2.9
  September 1,057 (14.1) 954 (5.8) 1,095 1.7 1,005 2.1
  December 1,118 (8.2) 958 (3.2) 1,093 2.0 1,009 1.8
2010 March 1,186 0.1 971 0.6 1,097 2.0 1,012 1.5
  June 1,210 12.7 984 2.0 1,099 1.7 1,016 1.6
  September 1,246 17.9 991 3.8 1,111 1.5 1,021 1.6
  December 1,256 12.3 1,000 4.4 1,137 4.0 1,026 1.7
2011 March 1,266 6.7 1,022 5.3 1,146 4.5 1,030 1.8
  June 1,296 7.1 1,031 4.8 1,157 5.3 1,035 1.9
  September 1,288 3.4 1,037 4.7 1,162 4.6 1,041 2.0
  December 1,269 1.0 1,042 4.2 1,158 1.8 1,047 2.0
2012 March 1,240 (2.1) 1,045 2.3 1,164 1.6 1,051 2.0
  June 1,209 (6.7) 1,051 1.9 1,168 1.0 1,056 2.0
  September 1,170 (9.2) 1,040 0.3 1,171 0.8 1,061 1.9
  December 1,156 (2.8) 1,037 (0.5) 1,169 0.9 1,066 1.8
2013 March 1,205 (2.8) 1,045 0.0 1,174 0.9 1,070 1.8
  June 1,261 4.3 1,051 0.0 1,176 0.7 1,074 1.7
  September 1,356 15.9 1,074 3.3 1,187 1.4 1,078 1.6
  December N/A N/A N/A N/A 1,188 1.6 N/A N/A
  1. Base: June quarter 2002 = 1,000.
  2. All industry inputs. Base: December quarter 2010 = 1,000.
  3. Base: June quarter 2006 = 1,000.
  4. All industry ordinary-time salary and wage. Base: June quarter 2009 = 1,000.

Source: Statistics New Zealand

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