April 17 (Bloomberg) -- New Zealand inflation slowed in the year to March as the worst recession in more than three decades curbed consumer demand, adding to signs the central bank will cut interest rates again this month.
Consumer prices rose 3 percent in the year ended March 31, Statistics New Zealand said in Wellington today. Inflation slowed from 3.4 percent in the year to December and matched the median estimate in a Bloomberg News survey of nine economists. From the fourth quarter, prices rose 0.3 percent.
Inflation is easing amid a domestic recession, which began in the first quarter of last year, and as a deepening global slowdown lowers commodity prices. Reserve Bank Governor Alan Bollard has cut the official cash rate by 5.25 percentage points since July to a record low.
“The Reserve Bank will be happy with that number,” said Helen Kevans, an economist at JPMorgan Chase & Co. in Sydney. “A large cut is warranted given what we’re seeing in the domestic economy and offshore.”
New Zealand’s dollar bought 57.46 U.S. cents at 11:25 a.m. in Wellington from 57.27 cents immediately before the report.
For the first time in 10 years, most companies cut prices in the first quarter, according to a survey by the New Zealand Institute of Economic Research. More firms expected to lower prices in the second quarter.
Room to Cut
Eight of 10 economists surveyed by Bloomberg News say Bollard will lower the official cash rate by a half point to 2.5 percent at his next review on April 30. Two expect a quarter- point reduction.
The Organization for Economic Cooperation and Development said yesterday Bollard has scope to cut borrowing costs as low as 2 percent this year to buoy the economy. The economy may stay in recession throughout 2009, the Paris-based OECD said in its annual survey of New Zealand.
Bollard, who is required to keep annual inflation between 1 percent and 3 percent, said last month that slowing economic growth and falling fuel prices will return inflation to his target range by the middle of 2009.
Inflation had exceeded the target band since the third quarter of 2007. Bollard forecast prices rose 0.4 percent in the first quarter.
Diesel, Gasoline
Inflation is slowing after reaching an 18-year high of 5.1 percent in the year ended Sept. 30, 2008, amid soaring fuel, food and air travel costs.
Fuel prices are now falling. Diesel prices dropped 19 percent and gasoline prices declined 1 percent from the fourth quarter, the statistics agency said today.
International airfares fell 17 percent and overseas package holidays were also cheaper.
The rising cost of food made the biggest contribution to inflation in the quarter, the agency said. Food prices rose 1.2 percent, led by fruit, bread and soft-drinks. Excluding food, consumer prices would have been unchanged.
Bollard’s primary focus is on non-tradable inflation, a core measure of prices that are not influenced by currency fluctuations and fuel.
Non-tradable prices rose 0.7 percent from the fourth quarter, the smallest gain in five quarters. The measure gained 3.8 percent from a year earlier, after rising 4.3 percent in the year to December.
Non-tradables inflation was led by rising rents and power prices. Tobacco prices were buoyed by a rise in taxes and the cost of university education also increased.
Prices associated with owning a home posted the smallest increase in almost eight years. The cost of buying and building a new house was unchanged from the fourth quarter. Local council land taxes were also unchanged.
Tradable prices fell 0.4 percent from the fourth quarter, when they tumbled 2.1 percent.
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