Preview of NZ Q1 RBNZ survey of inflation expectations (and why its important)
Last week we got a reminder of the weight the RBNZ place on inflation expectations, Reserve Bank of New Zealand Assistant Governor McDermott:
While the RBNZ is very much on monetary policy hold a surprise to the high side on the data should indicate rate hikes are coming closer (again ... RBNZ is on hold right now though and for a good while to come) and should be NZD positive. And vice versa - a downside surprise should be NZD negative as it pushes potential hikes further into the future (did I mention the RBNZ is on hold for a good while to come?)
Greg posted this earlier:
The data today is due at 0200 GMT
Preview, this via Westpac:
- The importance of the Reserve Bank's survey of inflation expectations has varied in recent years. A sharp fall in this survey was cited as a key reason for the OCR cuts in 2016, but since then, the RBNZ has tended to downplay the twoyear ahead survey in favour of longer-term measures.
- The timing of the survey was changed last year, so that it is now held directly after the quarterly CPI release. Annual inflation fell from 1.9% to 1.6% in the March quarter, well below market forecasts. It's likely that surveyed expectations will follow the CPI lower; the question is to what extent the 2% midpoint of the inflation target serves as an anchor.
NAB quick one:
- Inflation expectations and food prices on Wednesday are worth a look, to see if any shifts have occurred following the soft CPI print.
- 2-year-ahead inflation expectations dipped slightly in Q4, but remained above the 2% midpoint of the RBNZ's inflation target. Since then, headline CPI has eased back to 1.6% yoy and looks set to fall further in the near term. As a result, we expect 2-year-inflation expectations to also ease slightly in Q1 and dip back below 2%.
- Given the soft near-term inflation outlook, there is also a risk the one-year-ahead inflation expectation measure also falls slightly from 1.87% in Q4. The RBNZ will be sensitive to any substantial falls in 2-year inflation expectations.
- NZ's 2-year-ahead inflation expectations dipped slightly in Q3, but remained above the 2% midpoint of the RBNZ's inflation target. Since then, headline CPI has eased back to 1.6% yoy and looks set to fall further still in the near term.
- As a result, we expect 2-year-inflation expectations to also ease slightly in Q1 and dip back below 2%