New Zealand’s inflation has risen less than expected in the first quarter as a hike in tobacco taxes and more expensive housing were offset by cheaper international holidays and in-season vegetables.
The consumers price index rose 0.3 per cent in the three months ended March 31, accelerating from a quarterly rate of 0.1 per cent in the fourth quarter of 2013, according to Statistics New Zealand.
That was slower than the 0.5 per cent pace predicted by the Reserve Bank and economists.
The annual pace of inflation slowed to 1.5 per cent from 1.6 per cent in calendar 2013, also below expectations.
The New Zealand dollar fell to 86.07 US cents from 86.36 cents immediately before the figures were released and the trade-weighted index fell to 79.93 from 80.18 as traders pondered whether a milder track of inflation would temper the central bank’s interest rate tightening cycle.
The increase in first-quarter inflation was driven by a 10 per cent lift in the price of cigarettes and tobacco, stemming from the government’s annual hike in the excise tax.
Stripping out tobacco, CPI was flat in the quarter.
International air travel prices fell 10 per cent in the quarter, as a stronger New Zealand dollar made overseas holidays more attractive amid seasonally lower airfares, and the price of vegetables declined 5.8 per cent.
A 0.7 per cent increase in prices for housing and household utilities contributed to the quarterly increase, with new housing prices up 1.2 per cent, rentals increasing 0.6 per cent, and a 1.5 per cent rise in property maintenance services.
Gas prices rose 3.3 per cent in the quarter, and dwelling insurance climbed six per cent.
The Reserve Bank is closely watching the pace of inflation, having flagged increased price pressures as a reason behind its shift to tighter monetary policy this year.
Governor Graeme Wheeler hiked the benchmark rate 25 basis points to 2.75 per cent in March and is expected to lift the official cash rate another quarter of a per cent next week.
Housing is a key concern for the central bank with increased building activity to lift supply in Auckland and the rebuild of Christchurch.