New Zealand’s ANZ monthly inflation gauge lifts 0.4 pct m/m in December, 0.8 pct q/q

New Zealand’s ANZ Monthly Inflation Gauge lifted 0.4 percent m/m in December, to finish the quarter up 0.8 percent q/q. Annual inflation in the Gauge was stable at 3.2 percent y/y. Housing-related prices remain a persistent driver of inflation, and recent vigour in the housing market suggests that will continue, ANZ Research reported.

Seasonal demand for vehicle hires saw road passenger transport prices lift a solid 13 percent m/m, which together with persistent strength in housing-related prices account for over half the 0.4 percent m/m lift in the Gauge. Prices fell in just two of the 37 groups we monitor in the month – vehicle insurance and telecommunication services – but both declines were negligible.

Quarterly inflation in the Gauge came in at 0.8 percent q/q. The quarterly increase was led by accommodation services (up 12.8 percent q/q, very seasonal), rents (up 0.7 percent q/q), domestic airfares (up 9.6 percent q/q, also highly seasonal), and purchase of housing (up 0.8 percent q/q).

The quarterly lift is down from 1.2 percent q/q in September, but still suggests some upside risk to our current forecast for Q4 non-tradeable CPI inflation of 0.6% q/q. Recent revisions to GDP go some way to explaining this building price pressure, with the economy running a little hotter in late 2018 and early 2019 than previously thought.

However, the sharper deceleration in growth in the second half of last year suggests pipeline inflation pressures are unlikely to intensify and that non-tradable inflation will struggle to stay around 3 percent y/y, the report added.