New Zealand's inflation set to run closer to 1% in 2016

The final development that influenced thinking on RBNZ OCR outlook was last week's Consumer Price Index figures for September. Consumer prices rose 0.3% in the September quarter, for an annual inflation rate of 0.4% - a little stronger than anticipated, and more in line with the RBNZ's forecast.

As expected, annual non-tradables inflation fell to 1.5%, the lowest annual rate since December 2001. This reflects genuinely subdued domestic inflation pressures, as well as one-offs such as the substantial decline in ACC levies.

According to Westpac, RBNZ OCR forecasts assume three key developments will have taken place by March, 

• An El Nino drought will have impacted agricultural production; 
  
  
• The housing market will have slowed as a consequence of mortgage lending restrictions in Auckland;
  
  
• Data will have made it clear that inflation is set to run closer to one percent than two for much of 2016.