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

 


NZ inflation moderates: Still expect a rate hike next week

New Zealand's inflation moderates: Still expect a rate hike next week

New Zealand's CPI increased by +1.5% y-o-y in Q1 (market had +1.7%) – a slight moderation from the +1.6% annual pace seen in Q4. Domestic costs are moving higher on the back of a strengthening economy, but, at the same time, an elevated NZD helped to keep a lid on imported costs. Today’s figures are modestly lower than the RBNZ’s expectations. However, with the economy continuing to pick up strongly, inflation is likely to rise further from here. We expect the RBNZ will continue to raise interest rates over the coming year, with a further 25bp hike still expected next week.

Facts
- Headline CPI increased by +0.3% q-o-q, to be +1.5% higher y-o-y (market had +0.5% q-o-q, +1.7% y-o-y; HSBC had +0.6% q-o-q, +1.8% y-o-y).

- Non-tradable inflation increased to +3.0% y-o-y, from +2.9% y-o-y in Q4. Tradable inflation fell to -0.6% y-o-y, from -0.3% y-o-y in Q4.

- Measures of core inflation generally remained stable in the quarter. Trimmed mean inflation was +1.5% y-o-y. Weighted median inflation was +1.7% y-o-y.

Implications
Annual CPI inflation moderated slightly in New Zealand in Q1, as a higher NZD helped offset rising domestic costs. With the economy strengthening, firms are now in a better position to improve margins and pass on rising costs to consumers. At the same time, the labour market is improving and this is likely to put some upward pressure on wages in coming quarters. These factors are providing a boost to domestic costs, with non-tradable inflation rising to +3.0% y-o-y in Q1, from +2.9% y-o-y in Q4. The strength in domestic costs was most notable in the housing sector, as post-earthquake reconstruction and rising house prices are providing a boost.

A higher NZD is helping to offset the rise in domestically generated inflation, with tradable prices falling on a y-o-y basis as the elevated currency keeps a lid on imported costs.

Overall, today’s outturn is modestly below the RBNZ’s expectations – the central bank was forecasting CPI inflation of +1.7% y-o-y in their latest set of projections released in March. However, looking ahead, inflation pressures are likely to continue to rise. Demand is booming and the economy is already operating at capacity. Domestic costs will continue to increase as firms compete for increasingly scarce resources. As a result, we expect the RBNZ will continue to gradually raise interest rates towards more normal levels in order to keep medium-term inflation pressures contained. We expect a 25bp hike next week.

Bottom line
Annual CPI inflation moderated slightly in Q1, as a higher NZD helped to offset rising domestic cost pressures.

However, inflation is likely to continue to increase from here, as the New Zealand economy remains on track to post one of the strongest rates of growth in the OECD in 2014.

As a result, we expect the RBNZ to continue to increase interest rates further, with a 25 basis point hike expected from the central bank next week.

© Scoop Media

 
 
 
 
 
Business Headlines | Sci-Tech Headlines

 

Royal Society: Review Finds Community Water Fluoridation Safe And Effective

A review of the scientific evidence for and against the efficacy and safety of fluoridation of public water supplies has found that the levels of fluoridation used in New Zealand create no health risks and provide protection against tooth decay. More>>

ALSO:

Scoop Business: Croxley Calls Time On NZ Production In Face Of Cheap Imports

Croxley Stationery, whose stationery brands include Olympic, Warwick and Collins, plans to cease manufacturing in New Zealand because it has struggled to compete with lower-cost imports in a market where the printed word is giving way to electronic communications. More>>

ALSO:

Prefu Roundup: Forecasts Revised, Surplus Intact

The National government heads into the election with its Budget surplus target broadly intact, delivering a set of economic and fiscal forecasts marginally revised from May to reflect weaker commodity prices and a lower tax take. More>>

ALSO:

Convention Centre: Major New SkyCity Hotel And Laneway For Auckland

Today SKYCITY Entertainment Group Limited revealed plans to build a new hotel and pedestrian laneway of bars, restaurants and boutique shopping on land it owns in the Nelson and Hobson Streets block, expanding the SKYCITY Entertainment Precinct. More>>

ALSO:

Igniting The Spark: Bringing The Digital Enabler To Life

Changing a name is, relatively speaking, the easy part of a re-invention. Changing a culture, getting all the ducks in a row, turning yourself inside-out to become customer-inspired is a much bigger challenge. More>>

ALSO:

Ebola And NZ: Targeted Screening At Airport But Risk Low

The risk of any cases of Ebola in New Zealand remains very low, but health and border authorities are well prepared... anyone arriving in New Zealand who in the last three weeks has visited countries affected will be screened for symptoms of the disease. More>>

ALSO:

Scoop Business: Brewer Seeking Crowd-Funding Cancels Shareholders’ Dividends

Shareholders in Renaissance Brewing company, the first business to seek equity through crowd-funding in New Zealand, have cancelled their claim on $147,000 of accumulated earnings “to make Renaissance a more attractive investment opportunity.” More>>

ALSO:

Get More From Scoop

 
 
Computer Power Plus

Standards New Zealand

Standards New Zealand
 
 
 
 
 
 
 
 
Business
Search Scoop  
 
 
Powered by Vodafone
NZ independent news