NZ headline CPI likely to rise 0.5 pct q/q in December quarter, says ANZ Research

New Zealand’s headline consumer price inflation (CPI) for the December quarter is expected to have risen 0.5 percent q/q, with annual inflation accelerating to 1.9% from 1.5% in Q3, according to the latest report from ANZ Research.

This is stronger than the RBNZ’s November MPS pick of 1.6 percent, owing largely to higher tradable inflation (ANZ: +0.2 percent q/q, RBNZ: -0.2 percent q/q). That said, at 0.7 percent q/q (3.2 percent y/y), non-tradable (domestic) inflation is expected to come in a touch stronger than the RBNZ’s November forecast of 0.6 percent q/q (3.1 percent y/y).

Taken together with some recent improvement in the data pulse, this suggests the Reserve Bank can afford to be patient with monetary policy settings – unless something untoward happens, the report added.

Annual non-tradable inflation has accelerated recently towards the goldilocks zone of around 3 percent. Q3 GDP revisions suggest the economy was running a little hotter in late 2018 and early 2019 than previously thought, the report added.

However, the sharper deceleration in growth in the second half of last year suggests pipeline inflation pressures may struggle to intensify from here.

Signalled downward revisions to annual net migration inflows (out next Thursday) suggest labour supply (and potential GDP) may have been a little lower than previously assumed, implying higher-than-otherwise pipeline wage and inflation pressure for a given rate of economic expansion.

"Looking forward, the recent recovery in the housing market and business sentiment (but less so reported business activity), and the promise of a little extra government spending on key infrastructure – even if that is a slow burn, medium-term story – mean the balance of risks to our forecast of an OCR cut in May is skewed towards this happening later, if at all," ANZ Research further commented in the report.