Interest rate cuts forecast as New Zealand retail spending falls

Spending by New Zealand shoppers on their credit and debit cards fell in December last year, adding to concerns that inflation is proving to be stubborn.

Retail spending on electronic cards was down 0.2 percent year on year last month, led by a fall in purchases of durables - the category covering furniture, hardware, appliances, pharmaceuticals, cosmetics and toiletries, said the government's statistics agency Thursday.

"While card spending was up in five of the six retail industries in December, a significant fall in the durables industry has lowered overall card spending in the retail sector," Statistics New Zealand business indicators manager Clara Eatherley said in a statement.

Spending on durables was down 1.8 percent, or 21 million NZ dollars (13.64 million U.S. dollars).

The ASB Bank, in an Economic Note issued Thursday, forecast the consumer price index (CPI) in the last quarter of 2015 would drop 0.2 percent, bringing annual inflation to just 0.3 percent.

The drop would be driven by a seasonal decline in fruit and vegetable prices and a 6-percent drop in petrol prices over the quarter.

The low petrol prices would keep the CPI below the Reserve Bank of New Zealand's (RBNZ) inflation target band of 1 percent to 3 percent until the second half of this year.

With inflation running below the target band for almost two straight years, the RBNZ was likely to cut the official cash rate by 25 basis points twice in the second half of this year, it said.

Last month the RBNZ cut the official cash rate to 2.5 percent, citing weak inflation and the next review will be released on Jan. 28.