New Zealand’s headline inflation likely accelerated in Q4 on base effects and rise in petrol prices

The New Zealand headline inflation is likely to have accelerated in the fourth quarter. According to an ANZ research report, the headline CPI is expected to have accelerated 0.3 percent sequentially, a tad above RBNZ’s November MPS pick of 0.2 percent. Annual inflation is anticipated to rise to 1.2 percent.

Base effects and increased petrol prices are expected to have greatly contributed to the estimated lift in the annual inflation. Retail fuel prices are anticipated to have increased 5 percent in the fourth quarter, in great contrast to the 7 percent decline seen in the same quarter year-on-year. This leads to a mechanical rebound in annual CPI inflation. The headline inflation is accelerated globally as oil price stabilizes after the late 2015/early 2016 falls.

Meanwhile, non-tradable inflation is expected to have come in at 0.5 percent quarter-on-quarter, which is still low historically, but it is trending higher and the risks are tilted to a modestly stronger outcome in the fourth quarter. The ANZ Monthly Inflation Gauge is signalling at rises in prices beyond just housing, which is in line with rising capacity strains throughout the economy.

However, tradable inflation is likely to have remained weak at -0.1 percent sequentially and at -0.5 percent year-on-year. While it is still negative, it might represent the highest annual tradable inflation since the second quarter of 2014, greatly reflecting petrol prices. Excluding petrol, tradable inflation is likely to come in at -0.7 percent sequentially and -0.5 percent year-on-year.

Meanwhile, ‘core’ inflation is expected to have risen slightly higher. There is some dispersion in several measures at present; however, modest lifts on average towards the central bank’s target mid-point are expected.

Inflation pressures are expected to gradually build over 2017. Deflationary influences are still present, which would make sure that inflation does not run away, stated ANZ. However, these factors are likely to be greatly usurped by traditional demand-pull forces and the simple mechanics of declines in oil prices being replaced by increases, noted ANZ.

At 05:00 GMT the FxWirePro's Hourly Strength Index of New Zealand Dollar was highly bullish at 100.176, while the FxWirePro's Hourly Strength Index of US Dollar was bearish at -96.5666. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex