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New Zealand In Period Of Deflation; Imported Goods And Services Now 'Cheaper'

New Zealand consumer prices have slumped for the first time in two years as oil prices continue to fall. Reserve Bank Governor Graeme Wheeler has reason to maintain current interest rates for an extended period.

The consumer price index declined 0.2 percent in the fourth quarter from the past three months, according to Statistics New Zealand. Cheaper petrol prices also led to the first quarter of deflation since December 2012.

The annual pace of inflation has slowed down to 0.8 percent from 1 percent in September. The chances of the New Zealand dollar reaching parity with the Australian dollar may be slim with the period of deflation in New Zealand. Fuel prices dropped 5.7 percent in New Zealand as global oil prices continue to decline amid growing competition between the Organisation of Petroleum Exporting Countries and new producers like U.S. shale gas producers, Bloomberg reported.

Economists from the Bank of New Zealand predicted two quarters of deflation, but they were less concerned about the wider implications to the economy. The Herald Sun reported that New Zealand’s economy will still keep on growing at a faster than expected rate than other developed nations in 2015.

The strength of the New Zealand dollar was identified as one of the factors causing the slow pace of inflation. Imported goods and services have become cheaper due to deflation.

Nick Tuffley, chief economist at ASB Bank in Auckland, said the Reserve Bank of New Zealand may want to be confident before raising interest rates again. He added that he doesn’t see more rate increases as of the moment.

Wheeler had indicated an extended hold on borrowing costs and lowered inflation forecasts as oil prices dropped. The RBNZ had previously predicted that the inflation rate will accelerate slowly within the year and in 2016.

New Zealand joins other countries in benign inflation as U.S. prices declined 0.4 percent in December. Europe is currently experiencing deflation which has prompted the European Central Bank to implement a programme of quantitative easing. Australia is expected to release its own data on consumer prices next week.

Published on:
January 21, 2015
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