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

 

Insurance: EQC To Double Payout, Scrap Contents Insurance

New Zealand’s Earthquake Commission may double its payout amount, scrap contents insurance and process claims through private insurers under the government’s long-running review of funding and management of the state-run earthquake insurer. More>>

ALSO:

Gordon Campbell: On Tiwai Point (And Saying “No” In Greece)

Its hard to see how Rio Tinto’s one month delay in announcing its intentions about the Tiwai Point aluminium smelter is a good sign for (a) the jobs of the workers affected or (b) for the New Zealand taxpayer. More>>

ALSO:

Half Empty: Dairy Product Prices Extend Slide To Six-Year Low

Dairy product prices continued their slide, paced by whole milk power, in the latest GlobalDairyTrade auction, weakening to the lowest level in six years. More>>

ALSO:

Copper Broadband: Regulator Set To Keep Chorus Pricing Largely Unchanged

The Commerce Commission looks likely to settle on a price close to its original decision on what telecommunications network operator Chorus can charge its customers, though it probably won’t backdate any update. More>>

ALSO:

Lower Levy For Safer Cars: ACC Backtracks On Safety Assessments

Dog and Lemon: “The ACC has based the entire levy system on a set of badly flawed data from Monash University. This Monash data is riddled with errors and false assumptions; that’s the real reason for the multiple mistakes in setting ACC levies.” More>>

ALSO:

Fast Track: TPP Negotiations Set To Accelerate, Groser Says

Negotiations for the Trans-Pacific Partnership will accelerate in July, with New Zealand officials working to stitch up a deal by the month's end, according to Trade Minister Tim Groser. More>>

ALSO:

Get More From Scoop

 
 
 
 
 
 
 
 
 
Business
Search Scoop  
 
 
Powered by Vodafone
NZ independent news