New Zealand's consumer prices rose in the third quarter as the economy bounced after COVID-19 restrictions eased, but it still fell short of expectations, reinforcing views that deeper monetary easing may come soon.
The consumer price index (CPI) rose 0.7%, reversing a 0.5% drop during the June quarter, as vegetable prices rose and public transport rebounded, data released by Statistics New Zealand showed.
Year-on-year inflation eased to 1.4% from 1.5%. Economists polled by Reuters had forecast a quarter-on-quarter rise of 0.9% and a year-on-year rise of 1.7%.
The quarter-on-quarter reading was below the Reserve Bank of New Zealand (RBNZ) forecast for a 1.1% rise, announced in August.
The drop in consumer prices has been a setback for RBNZ, which has spent almost a decade trying to get inflation above the middle of its 1%-3% target band.
RBNZ has responded to the pandemic by slashing interest rates to a record low of 0.25%, and said it was actively considering negative interest rates and funding for lending (FLP) programme for banks.
"The weaker starting point will only support the RBNZ’s resolve to do more, and do it early," Kiwibank Chief Economist Jarrod Kerr said in a note.
"We expect the FLP to begin before year end. And a negative cash rate is now highly likely as early as February," said Kerr.
The New Zealand dollar had limited reaction to the data, slipping 0.1% but later settling higher at $0.6670.
New Zealand fell into its deepest recession on record in the second quarter, although the contraction was less severe than expected due to the government's success in containing community COVID-19 transmissions.
But with unemployment set to rise and wages subdued, the outlook is still muted.
(Reporting by Praveen Menon; Editing by Chris Reese and Sam Holmes)
