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Analysts at ANZ note that New Zealand’s headline CPI rose 0.4% q/q in Q2, which was below consensus expectations (0.5%) but above ANZ’s estimate (0.1%), which saw annual inflation pick up to 1.5% y/y from 1.1% in Q1.

Key Quotes

“Tradable prices rose 0.3% q/q (0.1% y/y), while non-tradable prices rose 0.4% q/q (2.5% y/y).”

In terms of the details, June is typically a soft quarter for inflation – today’s print was around middle of the road in that regard.  It was not overly weak, but not strong either.”

But there were some offsets.  Broadly as expected, the food group rose 0.8% q/q and petrol prices rose 3.2% q/q. The latter reflecting recent NZD weakness and higher oil prices. Petrol will likely make another positive contribution in Q3 given the recent lifts in fuel taxes.”

The housing group remained at the fore, and despite our expectation for the recent deceleration to remain in a holding pattern, housing-related prices proved they haven’t found a limit just yet.”

Tradable price inflation was as we expected. However, beyond petrol and the seasonal lift in some food prices, we’re still left with a picture of soft retail prices,  likely a result of intense competition.”

Overall, while there were hits and misses, today’s release still had firmer tone than were expecting.”

Core and underlying inflation measures also strengthened slightly.  The trimmed mean measures lifted across all levels of the trim in annual terms and the weighted median gained 0.3%pts to 2.3% y/y.”

While the print is stronger than expected and rising (or stable) core inflation will provide some tentative reassurance, today’s data are consistent with the RBNZ maintaining a cautious stance.  Inflation is still below the RBNZ’s target midpoint and the outlook is far from clear cut.”

If inflation materialises as we expect, the RBNZ will eventually increase the OCR – but that’s a long way away yet and any moves will be gradual.”