After a robust pace in the first quarter of the year, inflation in New Zealand lost steam in the second quarter, rising less than expected. Since the newly released data indicated that consumer prices are not going to pick up soon, the Reserve Bank of New Zealand will be in no rush to raise interest rates in the short-term. Meanwhile, the kiwi fell below the $0.7300 key level in the Asian session following the CPI figures but managed to recover immediately.
Based on calculations from the Statistics New Zealand, consumer prices of goods and services in the country remained unchanged within the second quarter, missing the forecast of 0.2% growth. In the first quarter, inflation grew by 1%, the highest percentage increase since 2011. Despite food prices continuing to rise, lower transport costs offset this increase. On a yearly basis, prices slowed from 2.2% to 1.7% in the second quarter and were below expectations of 1.9%.
Eyes will now focus on the next RBNZ meeting on August 10, where policymakers will gather to decide on the cash rate. In their last meeting in May, the RBNZ kept rates steady at 1.75% and showed no intention to hike rates in the upcoming months as they characterized the recent steep increase in inflation as temporary due to volatility in energy and food prices. Although headline inflation was within the RBNZ’s target of 1-3%, the latest CPI numbers are expected to give fewer incentives to policymakers to adjust their accommodative monetary policy.
The release of the data sent the kiwi against the greenback immediately down by 0.80%, near to a one-week low of $0.7262, from $0.7320 traded earlier in the Asian session. However, the currency bounced back, recouping all its losses before the end of the session on the back of a weaker US dollar.
