New Zealand Q4 2018 CPI seen flat, annual inflation slipping to 1.8 pct: ANZ Research

New Zealand’s headline CPI is expected to have remained flat in the December quarter, with annual inflation slipping from 1.9 percent to 1.8 percent. Tradable inflation is expected to print at -0.8 percent q/q, while non-tradable inflation is expected to post a 0.4 percent q/q rise, according to the latest report from ANZ Research.

The RBNZ may take a degree of comfort from the fact that Q4 weakness is expected to be concentrated in tradable inflation. But the medium-term outlook for domestic inflation is more troubling. The RBNZ needs to see accelerating GDP growth to achieve a sustained lift in inflation, and the prospect of that is slipping away.

Food prices are expected to provide their usual seasonal drag, which fell 1.3 percent q/q in the quarter and alcoholic beverages also saw seasonal declines. Together, these are expected to detract 0.3 percentage point.

Further, durable prices look set to drag in the quarter, reflecting seasonal sales and continued weakness in retail prices, in part due to weak import prices. The same factors are also contributing to non-existent inflation in apparel prices. Communications prices are also expected to continue to decline, dragging on inflation. These forces together are expected to subtract 0.1 percentage point from inflation.

Also, housing-related prices continue to support domestic inflation. Rents are forecast to increase 0.6 percent q/q and purchase of housing is expected to increase 1.3 percent q/q, with smaller contributions from property maintenance and higher electricity prices. The household and household utilities group is expected to boost CPI inflation by 0.2 percentage point. 

Accommodation prices will see seasonal strength. Accommodation prices are expected to have risen 6.9 percentage, contributing 0.2 percentage point.

"On the whole, we see risks to our flat Q4 CPI forecast as balanced. There is scope for an even lower tradable inflation outturn, reflecting weakness in imported prices and pass-through of lower petrol prices. On the other hand, there is scope for an upside surprise on non-tradable inflation if rents increase more than expected, as signalled by our ANZ Monthly Inflation Gauge," the report added.