New Zealand’s headline inflation exceeds expectations in Q4

New Zealand’s headline inflation came in stronger than anticipated in the fourth quarter. CPI inflation accelerated 0.4 percent sequentially in the December quarter, as compared with consensus expectations of 0.3 percent. Due to base effects, annual inflation accelerated to 1.3 percent year-on-year, marking the end of the eight straight quarters below the bottom of the central bank’s target band, noted ANZ in a research report. Tradable prices accelerated 0.3 percent sequentially and dropped 0.1 percent year-on-year. Meanwhile, non-tradable prices were up 0.6 percent sequentially and 2.4 percent year-on-year.

As anticipated, prices of petrol largely contributed positively to the headline print. Prices rose 4.1 percent sequentially, contributing 0.2 percentage points to the quarterly data. If petrol prices remain at the current levels for the remainder of the first quarter of 2017, a similar contribution is likely in the quarter, stated ANZ.

The housing group recorded a decent rise again in the quarter, rising 0.6 percent sequentially. Implied construction costs were up 1.4 percent. Rent and property maintenance inflation was widely stable. Lower food prices gave some offset as anticipated. Prices of food dropped 1.2 percent sequentially, negatively contributing 0.2 percentage point to the headline print.

The effect of continuous deflationary forces is also evident, although not as much as expected. Tradable excluding fuel prices dropped 0.3 percent sequentially, with some durable-type goods reversing their surprising rise in the third quarter. This was partly countered by increases in new and used car prices and a seasonal rise in international airfares. However, the strengthened NZD, robust retail competition and the ongoing effect of technology appear set to continue to have an influence over elements of the domestic inflation process for some time.

However, there are evident signs of rising price pressures. Non-tradable inflation, excluding government charges and tobacco, was up 0.8 percent sequentially and 2.4 percent year-on-year. This is the strongest annual inflation in this measure since the fourth quarter 2013. Seasonally adjusted, the headline inflation accelerated 0.7 percent sequentially, the strongest quarterly rise since the third quarter of 2013. Core measures such as the trimmed mean and the weighted median continue to rise and are closer to the target midpoint. The CPI, stripping energy, food and fuel was up 1.6 percent year-on-year, the highest since the first quarter of 2014.

“We expect this theme of stronger and broader underlying pressures to develop further over the course of 2017. It is all consistent with an economy that is not only growing strongly, but increasingly hitting capacity and resource pressures”, added ANZ.