Data Flash (New Zealand) - Preview CPI June Quarter 2000
Deutsche Bank forecast:::::: +0.8% qoq, with balanced risk distribution RBNZ projection:::::::::::::::: +0.8 % qoq
Market expectations (median): +0.8% qoq (range: +0.7 to +1.0%) Previous release (Q4):::::::::::+0.7% qo
qKey Points
We expect the CPI to have risen by 0.8% qoq in Q2, lifting the annual rate of increase from 1.7% to 2.1%.
The RBNZ has revised up its initial estimate of 0.3% to 0.8% as well, following the significant tobacco tax increase in
mid-May and the renewed rise in petrol prices. Those two components are estimated to account for about half of the total
CPI increase in Q2. Another key upside influence will be the rebound in airfares. Food prices are expected to make a
small negative contribution.
Looking ahead, we expect continued high petrol prices and the remainder of the tobacco tax increase to add around 0.5%
to the Q3 CPI. Together with broader price pressure related to the weak NZD, that is likely to lead to an overall
quarterly increase in excess of 1%, thereby lifting the annual rate of inflation to 2.8%. We expect inflation to peak at
3.2% at the end of this year.
Deutsche Bank CPI Forecasts (Q2/2000)
Group (series::::::::::qoq% change:::::yoy% change contribution
weights):::::::::::::::::::::::::::::::::::::::: to q% change
Food (18.2%):::::::::: -0.4:::::::::: 0.0::::::::::-0.07
Housing (23.0%):::::::::: 0.4:::::::::: 2.4::::::::::0.09
Household Operation::::: 0.1::::::::::-1.4::::::::::0.01
(14.8%)
Apparel (3.7%):::::::::: 0.8:::::::::: 0.4::::::::::0.03
Transportation:::::::::: 2.2:::::::::: 6.6::::::::::0.35
(15.4%)
Tobacco/Alcohol:::::::::: 2.9:::::::::: 4.3::::::::::0.26
(9.3%)
Personal/Health Care::::: 0.6:::::::::: 1.6::::::::::0.04
(6.0%)
Recreation/Education::::: 1.0:::::::::: 2.7::::::::::0.09
(8.8%)
Credit Services:::::::::: 2.8::::::::::-0.2::::::::::0.02
(0.7%)
Total CPI::::::::::::::: 0.8:::::::::: 2.1:::::::::: 0.8
Source: DB Global Markets Research
CPI Component Forecasts
Food: The reversal of significant grocery price increases that occurred in Q1 is expected to lead to an overall
reduction in measured food prices this quarter. Fruit and vegetable prices are also forecast to make a negative
contribution.
Housing: While a slowdown in new building activity has had a dampening influence on construction costs, we expect that
to have been more than offset by the rising cost of timber. That component accounts for around 25% of the cost of
building a house.
Household Operations: We estimate that a modest firming in appliance and furniture prices has occurred as a result of
the weak NZD. Furthermore, premiums for household contents insurance have risen. However, most of that is likely to have
been offset again by lower phone charges.
Apparel: The usual seasonal increase in prices is likely to have been exacerbated by rising import costs. A cap to price
increases has been provided by soft consumer demand.
Transport: We estimate that petrol prices have increased by 5.2% in Q2. The expected rebound in airfares is also related
to international oil prices. Domestic fares are estimated to have risen by 2.2%, while international fares are likely to
have rebounded after the 9.1% fall in Q1. However, even with our estimate of a 6.6% increase in Q2, international fares
would have been 4.8% below Q2/99 - which suggests some upside risk to this component.
Tobacco and Alcohol: The increase in taxes has led to an overall increase in prices of tobacco products of around
15-18%. Given the timing of the tax rise, only 40% of the increase will be measured in Q2. Excise taxes on alcohol have
also increased by 1.7%, in line with the CPI increase over the year to March. One third of that will be captured in Q2.
Personal and Health Care: Due to changes to eligibility to free health care for low income earners, fees for medical
services are estimated to have fallen marginally, offsetting the upward trend in other health care costs.
Recreation and Education: A seasonal increase in stationery prices, as well as higher newspaper prices as a result of
increased costs of newsprint, are the key drivers of the overall increase in this group.
Credit Services: This group, representing just 0.7% of the total CPI regimen, is expected to reflect the widely
publicised increases in fees for banking services.
Ulf Schoefisch, Chief Economist, New Zealand,
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