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New Zealand’s headline consumer price inflation is expected to rise 0.3 percent in the March quarter, with annual inflation slipping from 1.9 percent to 1.7 percent. Tradable inflation is expected to print at -0.6 percent q/q, while non-tradable inflation is expected to post a 1.1 percent q/q rise, according to the latest report from ANZ Research.
CPI in line with expectations would add to the case that a cut in the Overnight Cash Rate (OCR) is not a matter of urgency. The Reserve Bank of New Zealand (RBNZ) would likely take some comfort from stronger domestic inflation (lifting from 2.7 percent y/y to 2.8 percent), with weakness concentrated in the relatively volatile and transitory tradable component.
However, the medium-term outlook for domestic inflation remains troubling. The central bank needs to see accelerating GDP growth to achieve a sustained lift in inflation, and by August it is expected to be clear that an OCR cut is required to support this.
Further, non-tradable inflation is expected to post a 1.1 percent q/q rise, consistent with the RBNZ’s February expectations. This would see annual non-tradable inflation increase from 2.7 percent to 2.8 percent.
The strong non-tradable print comes from seasonal strength in regulated prices, such as tobacco and education, as well as increases in housing-related prices. Core inflation has increased over the past year, but the suite of core measures is seen to track broadly sideways from here.
"While we are expecting a lift in non-tradable inflation next week, the medium-term outlook remains troubling. The economic expansion is losing steam, the global environment is no longer a tailwind, and the peak in capacity pressures appears to be behind us. Domestic inflationary pressures appear fragile, with early signs of waning capacity and cost pressures. The RBNZ needs to see accelerating GDP growth to achieve a sustained lift in inflation, and they are running out of growth drivers to achieve this," the report added.
Image Courtesy: ANZ Research
