New Zealand’s CPI inflation likely decelerated in Q3, RNBZ may further cut OCR in November

New Zealand’s consumer price index inflation is expected to have decelerated in the third quarter from the prior quarter. According to a Westpac research note, CPI, in sequential terms, is likely to have risen 0.2 percent in the September quarter, as compared with the 0.4 percent rise recorded in the second quarter. This might see the annual rate of inflation dropping to 0.2 percent as well from the June quarter’s 0.4 percent.

The weakness in the CPI inflation is mainly due to transport categories, with cheaper fuel, airfares and vehicle registrations. Housing related groups are expected to continue to register the largest price gains, stated Westpac. The deceleration in annual inflation is because of temporary factors and would not be a surprise for the Reserve Bank of New Zealand.

“Annual inflation is expected to gradually move back within the RBNZ’s target band over coming quarters although a sustained return to the target is by no means assured”, added Westpac.

Meanwhile, given the inflation hovering at lower levels and associated downside risk for inflation expectations, the RBNZ appears set to further lower the OCR in November. In line with this anticipation, a recent speech by RBNZ Assistant Governor McDermott’s repeated the central bank’s guidance that additional easing of policy would be “required to ensure that future inflation settles near the middle of the target range”. This might take the OCR to a new record low of 1.75 percent, stated Westpac.