New Zealand's inflation substantially below the Reserve Bank's forecast - Westpac

Analysts at Westpac analyse the major miss in New Zealand's inflation numbers, noting that the results were substantially below the Reserve Bank's forecast, with surprises in both the volatile tradables and the stickier non - tradables categories.

Key Quotes

"Prices were subdued across a broad range of categories. As we highlighted in our preview. the spike in vegetable prices was offset by lower grocery prices and a fall in fuel prices. Prices were generally softer in the import-heavy categories such as household goods and electronics, reflecting the strengthening of the New Zealand dollar over the last year or so."

"The one area where price pressures remain rampant is in the construction of new homes: up 1.8% for the quarter. and 6.4% over the last year. New home prices were up 3% in just one quarter in Auckland. However, there is still little sign of these price pressures spilling over into other areas. and we question how long they can be sustained in the face of a cooling in existing home prices."

"The result was substantially below the Reserve Bank's forecast, with surprises in both the volatile tradables and the stickier non-tradables categories. While the RBNZ has already been on the side of arguing that OCR hikes are a long way off. today's result should put a severe dent in market expectations that the RBNZ will be hiking rates by mid-2018."

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