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    New Zealand Inflation Gauge Becomes More Sensitive to Building Costs, Rents

    Abstract:New Zealands primary inflation gauge has become more sensitive to changes in the cost of home construction and rents after the latest review of items that comprise the consumers price index.

      New Zealands primary inflation gauge has become more sensitive to changes in the cost of home construction and rents after the latest review of items that comprise the consumers price index.

      The housing and household utilities group will now account for 28% of the CPI, up from 24.5% previously, new weightings published by Statistics New Zealand show. Residential rents now have a 10.3% weighting, up from 9.2%, and the cost of building a new home has an 8.7% weighting, up from 5.5%.

      The three-yearly review takes account of household spending patterns to ensure the CPI fairly reflects where consumers money is being directed. The Reserve Bank targets average CPI inflation of 1-3% over the medium term, with a focus on the 2% midpoint.

      Transport will have a lower weight in the CPI than before, dropping to 11.9% from 14%, which largely reflects international airfares.

      The statistics agency is concerned that airfares will climb steeply as borders re-open, which could have an influence on the overall CPI movement that is far greater than reality, it said in a paper on its website last month. The same approach applies to purchases of overseas accommodation.

      Across the CPI, tradables prices -- which are influenced by currency movements -- will have a slightly reduced weighting of 39.9% from 42.5%, with non-tradables prices rising to 60.1% from 57.5%.

      Statistics New Zealand is due to publish further details of the CPI review on Friday, when it will also publish the index for the three months through September. Economists forecast prices rose 1.7% from a year ago, according to a Bloomberg survey.

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