Westpac Institutional Bank Team
Westpac Institutional Bank
In this week’s report we take a look at what’s been happening with inflation, and what key forward indicators are currently pointing towards. Inflation in New Zealand is already low. And as we’ve highlighted in recent weeks, strengthening headwinds for the New Zealand economy are expected to result in a marked slowdown in GDP growth over the coming year. It’s a combination of conditions that means the Reserve Bank will have its work cut out to achieve a sustained pick-up in inflation back to 2%.
In the year to June consumer price inflation was 0.3%. That’s only a touch above the 15 year low it reached in early-2015, and still well below the Reserve Bank’s 1 to 3% target inflation band.
In large part the current low level of inflation is a result of earlier falls in global oil prices. But that’s certainly not all that’s going on. Excluding petrol prices, inflation in the year to June was just 0.7% - the lowest it’s been in more than 15 years. And that picture of low inflation is echoed across the range of core inflation measures produced by Statistics NZ and the Reserve Bank (core inflation measures strips out noisy movements in prices, giving us a better feel for the trend in inflation).
Dampening inflation over the past year has been broad based softness in import prices. Over the coming months, the fall in the NZD will see some of this softness reverse, driving a pick-up in overall inflation. However, this will provide only a temporary boost to inflation. Also, with petrol prices pushing down again in recent weeks, it’s likely to be a more modest pick-up than previously anticipated.
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