The CPI rose 1.7 percent in the year to September 2009 quarter, down from the 1.9 percent and the 3.0 percent in the two previous quarter years. This was the lowest annual increase since the year to the March 2004 quarter. 

This record low annual increase masks the fact that, on the quarter, prices rose 1.3 percent following smaller increases of 0.6 percent and 0.3 percent in the two previous quarters and a fall of 0.5 percent in the December quarter. The reason it was a record low was more on account of the 1.5 percent increase in the quarter to September 2008 falling out of the annual calculation.

In reality, this quarterly increase was well above what was forecast, and would immediately suggest that there are indeed pressures on prices.

However, when looking at what went up in the quarter, you could argue that the increase in prices it isn’t being driven by a recovering market. Apart from international air transport (which was up 11 percent) the major increases were from local authority rates and payments (up 5.6 percent) and vehicle relicensing fees (up 16.2 percent).

The increase in transport prices were 3.1 percent, food prices were up 1.7 percent and housing and household utilities were up 0.7 percent. These were driven by higher international air transport and vehicle relicensing fees, higher vegetable prices, and higher local authority rates and payments.

On the year, the 1.7 percent increase was driven by food prices (up 5.4 percent) and housing and household utilities (up 2.1 percent). Interestingly, second had car prices were up 12.9 percent on the year.

Keeping prices down was the lower price for petrol (down 19 percent) and diesel (down 38.8 percent) and overseas package holidays (down 11.9 percent) ). Even though international air transport prices were up 11 percent on the quarter, they were still down 15.1 percent on the year.
Looking forward, annual CPI should return to 2 percent by the December 2009 quarter and will then gravitate toward the higher end of the RB’s one to three percent target band until such time as the RB loses its nerve and raises the OCR again.