Video | Agriculture | Confidence | Economy | Energy | Employment | Finance | Media | Property | RBNZ | Science | SOEs | Tax | Technology | Telecoms | Tourism | Transport | Search

 


NZ inflation rising: case for a near term hike strengthens

NZ inflation rising: case for a near term hike strengthens


New Zealand’s Q4 CPI print surprised the market on the upside, rising by +0.1% q-o-q (market -0.1%). For the year, CPI inflation was +1.6% (market +1.5%). Annual inflation was at its fastest rate in 7 quarters. The lift in inflation is consistent with a pick-up across a range of other demand indicators. Growth is also picking up more quickly than the RBNZ had forecast in its last official statement – Q3 GDP was stronger than expected and the timely surveys suggest strong growth in Q4. The case for a near term cash rate hike is strengthening. We continue to expect a hike in Q1 and now see a January rate rise as likely.

Facts
- Headline CPI increased by +0.1% q-o-q and +1.6% y-o-y (market had +1.5%; RBNZ had +1.4%; HSBC had +1.7%).

- Tradable inflation fell -0.3% y-o-y, while non-tradable inflation rose by +2.9% y-o-y.

- The trimmed mean measures ran at an annual pace of +1.6% and +1.7% y-o-y.

- Price rises occurred in international airfares (+12% q-o-q), partly reflecting seasonality, and housing costs (+0.5% q-o-q). Vegetable prices fell (-20% q-o-q) as did petrol prices (-3.5% q-o-q), partly reflecting a stronger NZD in the quarter.

Implications
New Zealand’s economy is at the beginning of a boom and today’s CPI print showed that it is slowly starting to feed through to a pick-up in inflation. The Q4 print showed that CPI inflation rose by +1.6% y-o-y, which still in the lower half of the RBNZ’s target band (1-3%), but it is now running at its fastest rate in seven quarters. The rise in inflation was also driven by domestic factors, rather than imported prices, providing some evidence that the local economy was already operating at capacity in Q4. Non-tradables inflation was +2.9% y-o-y, while tradables fell -0.3% y-o-y.

Today’s numbers add to the collection of numbers that have surprised the RBNZ on the upside since their last set of published official forecasts (on 12 December). Q3 GDP was higher than the RBNZ expected (+3.5% y-o-y; RBNZ +3.3%) and recent business surveys suggest they are also likely to get an upside surprise in Q4. Dairy prices also appear to have held up better than the RBNZ expected.

As at the mid-December official statement the RBNZ was signaling that they expected to start lifting rates from Q2 2014. The case is strengthening for an earlier hike.

The bugbear in this story is that the NZD has also risen recently, which is likely to continue to concern the RBNZ. However, it may be that the RBNZ needs to get used to a persistently stronger NZD, as the factors that are underpinning local growth are likely to persist. Growth is being supported by three persistent factors: the post-earthquake rebuild in Canterbury, high dairy prices and a housing boom (as we noted in our recent report: ‘New Zealand in 2014: Firing on all cyclinders’, 10 January, link: https://www.research.hsbc.com/midas/Res/RDV?p=pdf&key=l0LQ0nYaj9&n=399680.PDF).

Our view remains that rates should rise soon, as the economy is picking up pace and inflationary pressures are likely to build further from here. We expect the first hike to be in Q1, with a January rise now more likely than not.

Bottom line
Inflation surprised on the upside, running at +1.6% y-o-y (market had +1.5%; RBNZ had +1.4%).

Together with a range of demand indicators that suggest growth is picking up faster than the RBNZ expected, we think the case for a near term hike has strengthened.

We continue to expect the RBNZ to hike in Q1 and see a January rate rise as likely.


ends

© Scoop Media

 
 
 
 
 
Business Headlines | Sci-Tech Headlines

 

Maritime: Navigation Safety Review Raises Big Issues For The Govt

Shipping Federation: "The reports makes it clear that the ratification of the Maritime Labour convention (MLC) is long overdue. Only when the MLC is ratified will Maritime NZ be able to inspect and enforce the labour conditions on international ships visiting our ports." More>>

ALSO:

100 Years After Einstein Prediction: Gravitational Waves Found

For the first time, scientists have observed ripples in the fabric of spacetime called gravitational waves, arriving at the earth from a cataclysmic event in the distant universe. This confirms a major prediction of Albert Einstein’s 1915 general theory of relativity and opens an unprecedented new window onto the cosmos. More>>

ALSO:

Farming: Alliance Plans To Start Docking Farmer Payments

Alliance Group, New Zealand's second-largest meat cooperative, plans to start withholding some stock payments to its farmers from next week to bolster its balance sheet and force suppliers to meet their share requirements. More>>

ALSO:

Gambling: SkyCity First Half Profit Rises 30%, Helped By High Rollers

SkyCity anticipates the Auckland business will benefit from government gaming concessions which were triggered on Nov. 11 in recognition of SkyCity’s $470 million Convention Centre development. Morrison said the concessions would allow the Auckland business to lift its activity during peak period, noting it had a record revenue week over the Christmas and New Year period. More>>

ALSO:

Money For Light: Kiwi Scientists Secure Preferential Access To Synchrotron

Science and Innovation Minister Steven Joyce today announced a three-year investment of $2.8 million in the Australian Synchrotron, the largest piece of scientific infrastructure in the Southern Hemisphere, to secure preferential access for Kiwi scientists. More>>

Telco Industry Report: Investment Hits $1.7 Bln A Year

Investment in the telecommunications sector is $1.7 billion a year, proportionately one of the highest levels in the OECD, according to a report released today on the status of the New Zealand sector. More>>

ALSO:

PGPs: New Programme Sets Sights On Strong Wool

A new collaboration between The New Zealand Merino Company (NZM) and the Ministry for Primary Industries (MPI), announced today, aims to deliver premiums for New Zealand's strong wool sector... More>>

ALSO:

Get More From Scoop

 
 
 
 
 
 
 
 
 
Business
Search Scoop  
 
 
Powered by Vodafone
NZ independent news