New Zealand Q1 headline CPI likely to rise 0.4 pct q/q, annual inflation to slow to 1.0 pct y/y: ANZ Research

New Zealand’s headline consumer price inflation for the first quarter of this is expected to come in at 0.4 percent q/q, which would see annual inflation slow from 1.6 percent to 1.0 percent y/y, a touch below the Reserve Bank of New Zealand’s (RBNZ) expectation of 1.1 percent, according to the latest report from ANZ Research.

Nonetheless, evidence of a broadening in domestic price increases beyond housing remains elusive. Core inflation measures are expected to be broadly stable. Policy-induced price rises will be broadly offsetting, with higher tobacco duty offsetting fees-free first-year tertiary education.

The usual annual increase in tobacco excise duty is expected to make a 0.3 percentage point q/q contribution, while the fees-free first-year tertiary education policy will broadly offset this, with a 4 percent fall in the education group instead of its typical Q1 rise.

"We expect a 0.8 percent q/q lift in non-tradable inflation, which would see annual inflation in this measure dip to 2.2 percent. We expect inflation to pick up again over coming quarters. Core inflation measures such as the weighted median and trimmed mean should smooth through this noise," the report added.

Meanwhile, the RBNZ is expected to continue to bide its time until there’s a little more certainty that inflation is set to rise. But with a new Governor, there is naturally more uncertainty than usual, and Mr. Orr’s first Monetary Policy Statement on May 11 will be perused with great interest, despite a clear market expectation of an unchanged OCR for a long time yet.

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