New Zealand released its inflation figures for the March quarter showing an apparent bottoming out of inflation as the economy recovers from a recession of 5 negative GDP growth quarters. As GDP growth has now turned positive, monetary conditions remain loose, and spending is tentatively recovering inflation is likely to at least be under-pinned if not increases slightly.
Into the detail; the main inflation figure was 2% year over year, on a quarterly basis it was up 0.4% since December, below consensus estimates for 0.6% (compares to 0.3% in March 09, and -0.2% in December). Looking through to the "tradeables" and "non-tradeables", annual tradeables inflation increased to 2% from 1.5% in December, while non-tradebles slowed to 2.1% from 2.3%. So basically non-tradeables are slowing their decline and tradeables are continuing to increase.
In terms of the inflation outlook however, it is going to be very much effected by artificial factors such as government policy e.g. ACC levy increases, the emissions trading scheme, and possibly the GST increase when it comes. That said there continues to exist spare capacity in the economy, and the unemployment rate is still 7.3% (compared to a low of 3.5% in December 2007). In addition housing market inflation isn't likely to make a significant contribution in the near term.
Thus the figures are unlikely to cause huge concern to the RBNZ in terms of monetary policy. However there is the risk that the artificial inflation gets passed on into inflationary expectations and expressed as real inflation. The next key data point out of New Zealand will be the (albeit lagging indicator) HLFS [Household Labour Force Survey] on the 29th of April which will provide an update on the employment situation.
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