WELLINGTON: New Zealand's annual consumer inflation is expected to have slowed to the lowest level in more than 12 years in the June quarter, leaving the central bank scope to remain on the sidelines before changing its record low interest rates.
A Reuters poll of 16 economists put the consumer price index at 0.5 percent in June, similar to the March quarter, pulling the annual rate down to 1.1 percent, the lowest since the December 1999 quarter.
That would sit comfortably at the lower end of the 1-3 percent target band of the Reserve Bank of New Zealand (RBNZ), which has also forecast the same numbers.
"(This) leaves little pressure on the RBNZ to alter its policy stance in the near term," said Goldman Sachs economist Philip Borkin.
The RBNZ has held its official cash rate at a record low 2.5 percent for more than a year because of restrained domestic demand, tame inflation, global uncertainty, and a high local currency.
However, the chance of a rate cut by the central bank to help stimulate activity is seen as a distant option given the RBNZ has previously voiced concerns about increasing price pressures as the rebuilding of quake-hit Christchurch, New Zealand's second-biggest city, gathers pace.
In addition, the non-tradables component of the index, a key barometer of domestic inflation, could see some pressures as power prices and rents rose, with Goldman Sachs forecasting a 0.8 percent increase in the quarter.
Analysts also expect higher fuel and transport costs, while food prices are likely to remain subdued.
Unlike some other Asian countries, New Zealand has seen soft price pressures over the past year due to a sluggish economy, leaving aside the one-off impact of a rise in the government sales tax in October 2010.
"Subdued inflation will be the theme for a while longer," said Westpac senior economist Michael Gordon.
"We expect annual inflation to bottom out in either the June or September quarters."
Recent indicators pointed to a sluggish outlook, with business confidence surveys turning pessimistic, households holding back spending and the government tightening its belt to bring the budget back into the black by 2015.
There have been signs of life returning to the property sector but elsewhere the domestic picture is uneven, with unemployment stubbornly high and modest activity in retail sales and manufacturing, all combining to keep interest rates on hold for a prolonged period.
A Reuters poll taken on Friday showed 12 of 18 economists forecasting the next move to be a rise in the first quarter of next year, with four expecting a June 2013 start, and two looking to early 2014.
In contrast, markets pricing based on the overnight swap rates implies a 13 percent chance of a rate cut at the next central bank rate review on July 26 due to uncertainties in euro zone countries.
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