N.Z. Inflation Rate Accelerates to 18-Year-High 5.1%

By Tracy Withers

Oct. 21 (Bloomberg) -- New Zealand's annual inflation rate accelerated to the fastest pace in more than 18 years in September, fanned by fuel and food costs that have hastened the nation's slide into a recession.

The consumer prices index rose 5.1 percent in the year ended Sept. 30, the most since 1990, Statistics New Zealand said in Wellington today. The result matched the median estimate of 14 economists surveyed by Bloomberg. From the second quarter, prices rose 1.5 percent.

Financial market turmoil may push the global economy into recession next year, the International Monetary Fund said this month. Reserve Bank of New Zealand Governor Alan Bollard last month forecast annual inflation will slow over the next two years and he has started to cut interest rates to kick-start spending and investment.

``We should see inflation moderate, but it's coming from a higher level than the Reserve Bank thought,'' said Su-Lin Ong, senior economist at RBC Capital Markets Ltd. in Sydney. ``It won't stop them cutting interest rates, but it might have some bearing on the pace and how quickly they get to neutral.''

The New Zealand dollar bought 62.02 U.S. cents at 11:25 a.m. in Wellington from 62.07 cents immediately before the report.

Bollard, who is required to keep inflation between 1 percent and 3 percent, said on Sept. 11 that slowing growth will return inflation to his target range by early 2010. He expected prices rose 4.9 percent in the year through September.

Economic Recession.

Bollard has cut the benchmark interest rate by three quarters of a point to 7.5 percent since July.

He will probably cut the rate by one point to 6.5 percent on Oct. 23, according to 10 of 14 economists surveyed by Bloomberg News last week. Ong is one of four economists expecting a cut to 6.75 percent.

The economy contracted 0.2 percent in the second quarter after shrinking 0.3 percent in the first three months of the year. Bollard last month forecast a further decline in spending in the third quarter and companies surveyed by the New Zealand Institute of Economic Research Inc. also expect a drop in sales in the final three months.

Growth in 2008 will probably slow to 0.5 percent from 3 percent in 2007, the Treasury Department said this month.

Consumer confidence is falling and the housing market is contracting. House prices dropped 6.1 percent in September from a year earlier. House sales are close to a 16-year low, according to Real Estate Institute figures.

Non-Tradable Prices

Bollard's primary focus is on non-tradable inflation, a core measure of prices that are not influenced by currency fluctuations and fuel, say economists.

Non-tradable prices rose 1.3 percent from the second quarter, the fastest pace in almost five years. The measure gained 4.1 percent from a year earlier after rising 3.4 percent in the year to June.

Fuel and food prices, plus the local authority land taxes, made the biggest contributions to third-quarter inflation.

Gasoline prices rose 4.6 percent in the quarter and 29 percent from a year earlier. Excluding gasoline, consumer prices gained 1.3 percent in the quarter and 3.7 percent over the year, the agency said.

Food prices jumped 3.7 percent, led by fresh vegetables and fruit as wet weather crimped production. Excluding food, consumer prices gained 0.8 percent in the quarter.

A 4.7 percent increase in local land taxes pushed up the cost of owning a home. Rents and electricity prices also increased. The cost of buying and building a new house gained 1.3 percent.

The price of overseas packaged holidays jumped 13 percent. Air travel and vehicle licensing costs also increased. The prices of used cars, telephones, clothing and computers fell.

To contact the reporter on this story: Tracy Withers in Wellington at twithers@bloomberg.net.