New Zealand September CPI inflation likely to rise 0.5 pct m/m, 1.9 pct y/y: Westpac Research

New Zealand’s consumer price-led inflation index for the month of September is expected to have risen 0.5 percent m/m, thus lifting the annual inflation rate to 1.9 percent. Measures of core inflation (i.e. excluding volatile items and one-offs) are likely to tell a similar story; inflation has picked up from its lows in the last couple of years but remains short of the 2 percent mid-point of the Reserve Bank of New Zealand’s (RBNZ) target band.

Food prices will make the most significant contribution to the rise in the CPI for the September quarter. Vegetable prices have largely receded from their April-May spike when wet weather wiped out some crops. However, grocery prices have been picking up in recent months – particularly for dairy products such as butter, reflecting the rise in global prices this year.

On the non-tradable side, the housing-related categories are likely to dominate once again. Local body rates are increased in the September quarter; we estimate an average rise of 3 percent, which is in line with last year but relatively low compared with history. Prices for newly-built homes are likely to continue to rise strongly, given the capacity constraints on the building industry. In contrast, we expect rents to continue their steady but modest rise.

"Our forecast is a fair bit higher than what the RBNZ expected in its August Monetary Policy Statement (0.2 percent q/q, 1.6 percent annual). We do also expect a slight rise in non-tradable inflation, up from 2.4 percent to 2.5 percent. An outturn in line with our forecast would, on its own, be a small plus for the RBNZ’s interest rate projections," Westpac Research commented in its latest report.

Meanwhile, FxWirePro launches Absolute Return Managed Program. For more details, visit http://www.fxwirepro.com/invest