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

 

Housing Policy: Auckland Densification As Popular As Ebola, English Says

Finance Minister Bill English said calls by the Reserve Bank Governor for more densification in Auckland’s housing were “about as popular in parts of Auckland as Ebola” would be. More>>

ALSO:

Crown Accounts: NZ Government Deficit Smaller Than Expected In First Half

The New Zealand government's operating deficit was smaller than expected in the first six months of the financial year, as the consumption and corporate tax take rose ahead of forecast in December, having lagged estimates in previous months. More>>

ALSO:

Fruit & Veg Crackdown: Auckland Fruit Fly Find Under Investigation

The Ministry for Primary Industries (MPI) is investigating a find of a single male Queensland fruit fly in a surveillance trap in the Auckland suburb of Grey Lynn... MPI has placed legal controls on the movement of fruit and some vegetables outside of a defined circular area which extends 1.5km from where the fly was trapped in Grey Lynn. More>>

ALSO:

Scoop Business: Westpac NZ Reaches $2.97M Swaps Settlement

Westpac Banking Corp’s New Zealand unit has agreed to pay $2.97 million in a settlement with the Commerce Commission over the way the bank sold interest rate swaps to farmers between 2005 and 2012. More>>

ALSO:

Going Dutch: Fonterra Kicks Off $144M Partnership With Dutch Cheese Maker

Fonterra Co-operative Group, the world’s largest dairy exporter, has commissioned a new dairy ingredients plant in Heerenveen, in the north of the Netherlands, its first wholly-owned and operated ingredients plant in Europe. More>>

ALSO:

Scoop Business: NZ Retail Sales Beat Estimates

New Zealand retail sales rose more than expected in the fourth quarter, led by vehicle-related transactions, food and beverages, adding to evidence that cheap credit and a growing jobs market are encouraging consumers to spend. More>>

ALSO:

Delivery Cuts Go Ahead: 'Government Money Grab' From NZ Post

"It's a money grab by the Government as the shareholder of New Zealand Post" says Postal Workers Union advocate Graeme Clarke about the changes announced by NZ Post. More>>

ALSO:

Get More From Scoop

 
 
Standards New Zealand

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