New Zealand inflation data due this week - preview

Author: Eamonn Sheridan | Category: News

NZ CPI data for Q2 is due Tuesday morning New Zealand time

  • 17 July 2017 at 2245GMT
  • expected +0.2% q/q, prior 1.0%
  • expected 1.9% y/y, prior 2.2%
Preview via ASB in NZ:
  • Annual inflation surged at the start of 2017, from a measly pace of 1.3% at the end of 2016 to 2.2% in Q1 2017. This not only brought annual inflation back into the RBNZ's 1-3% target band, but also comfortably above the mid-point. However, the RBNZ was quick to note that this surge in inflation will likely be temporary, largely as a result of volatility in food and fuel prices.
  • Indeed, we (and the market consensus) expect annual inflation to ease back slightly to 1.9% in Q2. This is a slightly faster moderation than the RBNZ expected at the time of the May MPS (2.1% in Q2) as petrol prices have since unwound almost half of the lift seen over the preceding two quarters. Nonetheless, inflation will likely be close to the inflation target mid-point in Q2.
  • Food prices continued to surge over autumn as storms took their toll on NZ's vegetable crops. The visitor boost, from the World Masters Games and Lions tour, is likely to put pressure on accommodation, domestic flights and recreational services (which include the price of rugby tickets). Meanwhile, housing remains a key source of consumer inflation, with rents and construction costs both likely to record continued robust growth.
  • However, beyond the squeeze in housing and tourism, we aren't seeing evidence of sustained domestic inflation pressures. And as a result, we expect that by early next year annual inflation could fall back as low as 1.3%. Global inflation pressures remain muted and the higher NZD over recent months means tradable inflation is likely to remain subdued. That is in line with the RBNZ's view that the headline inflation lift is temporary and underlying core inflation pressures are still too low
  • Subdued inflation pressures, coupled with the lacklustre growth over recent quarters, reinforces why we continue to expect the RBNZ will be leaving the OCR at current low levels for at least another year.