With domestic inflation easing since June and headline inflation well below the reference range of 6-8% there are no inflationary pressures on the monetary policy stance in the near term, the National Reserve Bank of Tonga reported on December 17.

Headline inflation in Tonga rose to 0.7% over the year to October 2014 but the rising inflation is easing compared to previous months driven by declining prices of imported food, particularly chicken, and domestic meat, fish and poultry.

“The major contributor to lower imported prices is the weaker New Zealand dollar, relative to the Tongan pa'anga over the month.

“Moreover, lower prices of domestic fish and beef contributed to decreases in the domestic meat, fish and poultry catagory,” it stated.

Deflation in the cost of domestic goods and services continued over the last few months with a deflation rate at -0.1% in October. (In June the deflation rate of domestic goods was -1.1%). Deflation rates for domestic goods and services experienced this year were also greater than previous years.

The rate is a huge contrast to early in the year, when domestic goods and services experienced inflation at over 5%.

Imported prices eased in October to 0.9%.

Headline inflation is expected to be broadly declining in the near term. All domestic fuel prices fell in November.

However, “Uncertainties affecting world food and oil prices, and local weather patterns, pose the largest risk to the inflation outlook,” the Reserve Bank stated.