[mralabama]

New Zealand consumer prices unexpectedly fell in the fourth quarter, giving the central bank scope to hold interest rates at a record-low until growth accelerates. The local currency dropped.

Consumer prices declined 0.3 percent from the third quarter, when they advanced 0.4 percent, Statistics New Zealand said in Wellington today. The median estimate in a Bloomberg News survey of 15 economists was for a 0.4 percent increase. None forecast a decline. Prices rose 1.8 percent in the year ended Dec. 31, the slowest annual pace since September 2010.

The first quarterly drop in prices since 2009 reflects an economy struggling to rebound from earthquakes in the past 16 months, even with a tourism boost from the Rugby World Cup. The inflation report sent the nation’s dollar falling from a 2 1/2- month high as investors increased bets central bank Governor Alan Bollard will keep the official cash rate at 2.5 percent until the second half of 2012.

“Domestic economic momentum is starting to soften,” said Philip Borkin, an economist at Goldman Sachs New Zealand Ltd. in Auckland. Today’s data give the Reserve Bank “some flexibility that if things deteriorate more than expected they have room to cut rates if need be,” he said.

New Zealand’s dollar weakened to 80.23 U.S. cents as of 11:47 a.m. in Wellington compared with 80.70 cents immediately before the report and 80.44 cents late yesterday in New York. It reached 80.82 cents yesterday, the highest since Nov. 1

Rate Pause
Eleven of 16 economists surveyed last month by Bloomberg News forecast Bollard will leave the cash rate unchanged until at least July. There is a 52 percent chance of a quarter-point rate cut by April, according to swaps prices from Westpac Banking Corp. (WBC) as of 11:02 a.m. in Wellington.

Bollard cut the cash rate in March after an earthquake devastated the southern city of Christchurch and killed 181 people. He has said repair and reconstruction in the region may stoke demand and require higher interest rates.

Bollard last month outlined a worst-case scenario of a weaker global outlook in which borrowing costs would remain on hold for longer.

“If that type of scenario is to play out, they’d have room to cut rates now,” said Borkin, who forecasts a rate rise in the fourth quarter.

Annual inflation slowed from 4.6 percent in the year through September as an increase in sales taxes on Oct. 1, 2010, that added an estimated 2.1 percentage points, is removed from the calculation, the statistics agency said.

Bollard’s Forecast
Bollard last month forecast that consumer prices would rise 0.4 percent in the fourth quarter, and that annual inflation would be 2.6 percent. He is required to keep inflation in a range of 1 percent to 3 percent on average.

Annual inflation is forecast to slow to 2 percent by the end of 2012, the central bank said on Dec. 8.

In the fourth quarter, consumer prices were led lower by a 25 percent slump in vegetable costs, today’s report showed. Excluding vegetables, consumer prices rose 0.1 percent, the statistics agency said.

About 133,000 rugby fans visited New Zealand from July to October, stoking spending on everything from transportation to hotels to souvenirs.

Bollard’s primary focus is on non-tradable inflation, a core measure of prices that isn’t influenced by currency fluctuations and fuel.

Non-tradable Prices
Non-tradable prices rose 0.2 percent from the third quarter, the slowest pace in two years, today’s report showed. The measure gained 2.5 percent from a year earlier.

Non-tradable inflation was stoked by house rentals, property maintenance services and the cost of purchasing a new home, which reflects construction expenses, the report showed. Electricity prices declined and the cost of telecommunications services dropped, reflecting lower Internet charges, international calling rates and mobile-phone service prices, the agency said.

Tradable prices slipped 0.9 percent from the third quarter, led by food. The cost of appliances, and computing equipment and furniture fell amid significant discounting by retailers, the agency said. International airfares, gasoline and used-car prices increased. From a year earlier, tradable prices were 1.1 percent more costly.