New Zealand's headline inflation fell to just 1.1 percent in the first quarter, suggesting the country's central bank is all but certain to signal it will keep rates on hold for some time. The consumer price index rose 0.5 percent in the three months ending in March, in line with analysts' expectations.
That left inflation just off the bottom of the Reserve Bank of New Zealand's (RBNZ) target range of 1 to 3 percent, down from 1.6 percent in the previous quarter and a 1.5 year low.
The result underscored economists' expectations that new RBNZ Governor Adrian Orr would take a similar stance to previous incumbents, given he has inherited the tepid inflation that saw them slash rates to a record low of 1.75 percent in 2016 and signal they could stay unchanged for years.
"All up, today's release suggests that the RBNZ will be comfortable leaving the official cash rate on hold for some time yet...We continue to expect the RBNZ to leave the OCR on hold until August 2019," ASB economists said in a note.
The RBNZ's next monetary policy decision is due on May 10.
Thursday's weak outcome reflected lower education costs, thanks to a new government policy to make students' first year of tertiary study free.
Yet there were signs even previously reliable drivers of price growth, such as the booming building industry, were starting to slow. Construction costs rose just 0.4 percent, the smallest quarterly rise in seven years.
"Although education costs were always going to be a drag on inflation in Q1, other soft spots remain evident," the ASB economists said.
The New Zealand dollar jumped from $0.7324 to $0.7342 on the inflation news, but gave up most of those gains.
The International Monetary Fund's latest consultation report on New Zealand expected inflationary pressures would rise throughout the year as businesses started to pass on wage hikes, but not all economists agree.
"Looking ahead, as we doubt that growing capacity constraints and the rising minimum wage will boost CPI inflation much, we suspect the RBNZ won't raise interest rates as soon as the markets expect," said Paul Dales, chief Australia and New Zealand economist at Capital Economics.
"Lift-off may not happen until the back end of next year."
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