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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 2.1% per annum, around the mid-point of the RBNZ's current 1% to 3% target band.

Annual Consumers Price Index (CPI) inflation increased significantly in the December quarter 2010 as an increase in the rate of goods and services tax (GST) 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 5.3% on an annual basis in June 2011 before falling to 1.8% in the year to December. This fall was mainly the result of the GST rate rise falling out of the calculation.

Annual CPI inflation continued to ease over 2012 and the first half of 2013, falling to 0.7% in the December quarter owing to the strong New Zealand dollar, which depressed tradables prices. Annual inflation gradually picked up in the second half of 2013, reaching 1.6% in the December quarter as tradables inflation was less negative and non-tradables inflation rose. Annual inflation remained relatively steady in the first half of 2014, at 1.5% in the March quarter and 1.6% in June, before falling to 1.0% in the September quarter and 0.8% in the December quarter owing to a high exchange rate, soft wage growth and low global inflation. It fell further in 2015 to 0.3% in the March quarter, chiefly as a result of lower petrol prices. Inflation picked up marginally in the June quarter to 0.4%, was unchanged at 0.4% in the September quarter and recorded a 0.5% fall in the December 2015 quarter.

In the near term, inflation is expected to rise to the RBNZ's target mid-point, as recent falls in petrol prices drop out of the annual calculation, the recent exchange rate depreciation boosts tradables inflation, domestic demand remains robust and capacity constraints associated with the Canterbury rebuild and residential construction in Auckland continue. Since the Budget Update, the exchange rate has depreciated, which is expected to boost tradables inflation, and other indicators suggest there is more spare capacity in the economy than previously estimated, which is expected to result in lower near-term non-tradables inflation. Annual consumer price inflation is forecast to remain below 1.0% until the end of 2015 before rising to 1.9% in mid-2016 and remaining around 2% thereafter. Tradables inflation is expected to pick up sharply from early 2016 as the low New Zealand dollar flows through into higher prices, while non-tradables inflation rises from September 2017 as spare capacity in the economy reduces.

Growth in the index of salary and ordinary-time wage rates declined sharply during the GFC to just 1.5% at the start of 2010 compared with around 3.5% before the crisis. Since then it has crept up, reaching 2.0% in late 2011 and early 2012 before easing again over the remainder of 2012 and 2013 as low inflation placed less pressure on wage growth and labour supply has expanded rapidly. Wage growth stabilised at a low level of 1.6% in the September quarter of 2015 but is expected to pick up over the next couple of years, partly as inflation gradually returns to trend.

Table 8 - Price and Cost Indices
Year Month Terms of Trade Index[1] Annual % Change Producers Price Index[2] Annual % Change Consumers Price Index[3] Annual % Change Labour Cost Index[4] Annual % Change
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 (8.9) 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 1,355 15.8 1,074 3.3 1,187 1.4 1,078 1.6
  December 1,389 20.2 1,066 2.8 1,188 1.6 1,083 1.6
2014 March 1,414 17.3 1,077 3.1 1,192 1.5 1,086 1.5
  June 1,415 12.2 1,066 1.4 1,195 1.6 1,091 1.6
  September 1,351 (0.3) 1,050 (2.2) 1,199 1.0 1,096 1.7
  December 1,319 (5.0) 1,046 (1.9) 1,197 0.8 1,101 1.7
2015 March 1,335 (5.6) 1,034 (4.0) 1,195 0.3 1,104 1.7
  June 1,355 (4.2) 1,031 (3.3) 1,200 0.4 1,109 1.6
  September 1,305 (3.4) 1,048 (0.2) 1,204 0.4 1,113 1.6
  December N/A N/A N/A N/A 1,198 0.1 1,118 1.5

Source: Statistics New Zealand

  • [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.
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