Coffee climbs to 6 week high

A Cuba Street flat white coffee rises 3% in two weeks on back of rapidly weakening inflation.

EXPATS, holiday makers, and not least, English writers, in New Zealand have become a little bit poorer in the last two weeks as the NZ dollar gains a little strength against the pound and a Flat White escalates to £1.58

Yet despite the rise, the ASB economic update confirms CPI inflation showed a 0.6% quarter-on-quarter (qoq) increase, bringing annual inflation down to 1.9%.

The annual increase is the smallest since the September 2007 quarter. "We expected a 0.6% qoq increase, slightly stronger than the market median expectation of 0.5%. The RBNZ’s June MPS forecast was 0.4% qoq," said the report.

Given the depth of the current recession, the ASB expects the RBNZ will have some tolerance for inflation stronger than its June expectations.

However, inflation below the target band is a greater concern in the near-term for central banks.

"Resource constraints are slipping away at a dramatic pace, highlighting that the sustained contraction in the economy will filter through to inflation over time. Most indicators within recent business surveys point to subdued price and cost pressures over 2009."