Low CPI seen as check to New Zealand interest rates

WELLINGTON, July 16 (Xinhua) -- A key gauge of New Zealand inflation rose by the lowest annual rate for 14 years in the year to the end of June, the government statistics agency announced Tuesday.

The consumers price index (CPI) increased 0.7 percent from the June 2012 quarter to the June 2013 quarter, according to Statistics New Zealand, leading analysts to forecast the Reserve Bank of New Zealand (RBNZ) would keep interest rates at their historic 2.5-percent low until next year.

"This annual increase is the lowest since 1999, and the fourth annual increase in a row below 1 percent," Statistics New Zealand prices manager Chris Pike said in a statement.

The annual CPI increase included a rise of 0.2 percent for the June quarter, led by rises in electricity and housing-related prices, but countered by lower petrol and vehicle prices, Pike said.

The strongest of the housing-related price rises were in the earthquake-battered Canterbury region, where new homes were up by 2.9 percent, rental by 1.1 percent and home insurance by 9.9 percent.

The key contributor to the annual increase of 0.7 percent was higher cigarette and tobacco prices, which were up 12 percent, reflecting a rise in tobacco taxes on Jan. 1.

Housing rentals were up 2.1 percent and new homes prices were up 4.1 percent, influenced by price rises in the South Island, particularly Canterbury.

The Council of Trade Unions (CTU) said that while low price increases were welcome, many of the rises, such as housing and electricity, were in areas that hit low income families the hardest.

"For the lowest income 30 percent of our households, I estimate they have faced inflation over the year 0.2 to 0.3 percentage points higher than the official CPI," says CTU economist Bill Rosenberg said in a statement.

An Economic Update from the ASB Bank said that while inflation has remained below the RBNZ's target band of 1 percent to 3 percent for a full year, it was expected to return to the upper half of the target band by 2015.

The RBNZ was more likely to introduce high loan-to-value restrictions on mortgage lending in order to cool the housing market, and would probably hold the official cash rate at 2.5 percent until March next year, it said.

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