Housing costs lead annual 1.5 percent inflation

Stubbornly weak inflation rates suggest the official cash rate will remain locked at record low 1.75 for the foreseeable future

"We expect the RBNZ will be looking for inflation to increase in a consistent, broad based way from here and will retain a neutral stance, signalling that the next move in interest rates could still be up or down, until it is confidence the underlying inflation pulse has strengthened", ANZ Research commented in its latest report.

The kiwi traded at 68.30 United States cents as at 5pm in Wellington versus 67.68 cents at 8am and 67.74 cents yesterday. Compared with May, consumer prices rose 0.1 percent in June, led by gains in housing rentals, fuel, fresh produce, food and transportation and telecommunications.

Headline CPI rose 0.4 percent q/q in Q2, which was below consensus expectations (0.5 percent) and this saw annual inflation pick up to 1.5 percent y/y from 1.1 percent in Q1.

"New Zealanders are paying more to keep their homes running", prices senior manager Paul Pascoe said. For the June 2018 quarter, the inflation rate was 0.4 percent, Stats NZ said.

Rates, property maintenance services, and home insurance are all higher than they were this time a year ago, Pascoe said.

The biggest driver behind the quarterly lift was housing-related prices, up 0.9 per cent in the quarter and 3.1 per cent annually.

Dwelling insurance prices have jumped 18% when compared to the year to June 2018.

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Food prices also rose by 0.8%, mainly due to seasonal fluctuations in vegetable prices, as did petrol prices which increase by 3.2%. The purchase of new housing lifted 3.9 per cent on the year and 1.1 per cent on the quarter.

"It was cheaper to buy a used auto this quarter as dealerships looked to move some stock, but that was offset by higher running costs", said Pascoe. Audio-visual equipment prices fell 15 per cent on the quarter while subscriber TV prices were down 7.2 per cent. Sky Network Television shares were unchanged at $2.60.

New Zealand CPI rose by 0.4% in the June quarter, below the 0.5% increase expected by financial markets.

The inflation reading is bang on the Reserve Bank's forecast.

"It is not the catalyst to push us in either direction really".

In its June monetary policy statement, the RBNZ said while its overnight cash rate will remain at 1.75% "for now", it added that it was "well positioned to manage change in either direction - up or down - as necessary".

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