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Analysts at ANZ expect New Zealand’s headline CPI to rise 0.1% q/q in Q2  (released 17 July), which would bring annual inflation to 1.2% – a 0.1%pt lift from Q1, but well below the RBNZ’s May MPS forecast of 1.5% y/y.

Key Quotes

“The small quarterly rise reflects a mix of higher fuel prices plus some of the usual ups and downs in other categories.”

As has been the case for some time, the housing group is expected to remain at the fore (rising 0.4% q/q),  with both rents and the purchase of housing expected to rise.”

We have pencilled in a flat quarter for non-tradables inflation.  However, our  Monthly Inflation Gauge  suggests there could be some downside to this after contracting 0.2% (3m/3m) in the June quarter.”

On the tradables side, we’re expecting a 0.3% q/q rise, although past NZD depreciation and higher-than-anticipated fuel cost pass-through suggest there’s a bit of upside to this.”

We’ll be watching closely for any deterioration in core inflation measures.”

We retain the view that domestic inflation will rise and broaden in time, particularly since firm margins are currently being squeezed. But the risk that inflation remains sluggish for longer is increasing,  particularly given  activity growth seems to have lost a bit of momentum recently.”

A crucial consideration for the RBNZ is the degree of underlying inflationary pressure and the extent that this is expected to increase.”

The RBNZ is likely to maintain a neutral stance until there’s more certainty that inflation is increasing in a broad based, sustainable way.”