Consumer Price Index Preview - Q4 2001

Data Flash (New Zealand)

(Release: 17 January, 10.45 NZT)

9 January 2002

Deutsche Bank forecast: +0.5% qoq / + 1.7% yoy - balanced risk distribution

Consensus (Dow Jones Newswires) +0.5% qoq/ +1.7% yoy

RBNZ projection in November MPS : +0.6% qoq / +1.8% yoy

Previous release (Q3): +0.6% qoq / + 2.4% yoy

Key Points

We expect the CPI to have increased by 0.5% qoq in Q4, leading to a fall of the annual rate of inflation from 2.4% to 1.7%.

Our forecast is in line with the market consensus but marginally weaker than the RBNZ's November MPS forecast. The decline in petrol prices since the RBNZ finalised its forecast is likely to explain its higher forecast.

As was the case in Q3, the main contributor to the result is expected to be the food group, with domestic food prices rising on the back of high world prices for agricultural commodities (notwithstanding more recent declines). Lower fruit and vegetable prices provide a partial offset.

Further positive contributions are expected from the housing group, reflecting increased construction costs and local authority rates.

A key negative contribution is expected to stem from the transport group. An estimated 10.5% decline in petrol prices will subtract 0.4pps from the CPI outcome. However, around half of this impact is expected to have been offset by higher prices for domestic and international airfares.

If our forecast is correct, such an outcome is likely to be associated with a reduction in some of the core measures of annual inflation, providing some comfort to the RBNZ. Further evidence of minimal `excess demand' related inflation would provide additional comfort.

Looking ahead to Q1, our preliminary forecast is for a further 0.5% qoq increase of the CPI. If our Q4 forecast proves to be correct, the annual rate of CPI inflation would rise to 2.4%. This reflects the dropping out of last year's negative Q1 CPI outcome (which was due to a one-off drop in state house rentals) from the annual calculation.

Darren Gibbs, Senior Economist, New Zealand

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