Doug Steel, Senior Economist at BNZ, suggests that the NZ’s consumer price inflation is low as on an annual basis, inflation edged down to 0.2% in Q3 from 0.4% in Q2.
Key Quotes
“The annual reading was the consequence of the 0.2% gain in Q3 itself which was the result of higher housing-related costs and vegetable prices, with some offset from lower fruit and transport prices (the latter including lower fuel and lower vehicle relicensing fees as a result of the well-signalled cut in ACC levies). These moves were broadly in line with priors.
The 1.1% q/q gain in housing-related inflation was as we expected, although with stronger-than-anticipated gains in construction costs offset by less-than-expected increases in rents (on the latter it was interesting that this quarter saw the highest proportion of rent increases since the March 2008 quarter). So not large rent increases, but rent increases have become more widespread. This fits with the widespread nature of the current housing boom.
Rightly or wrongly, there is always a lot of focus on inflation outcomes as market participants dissect the decimal points to try and deduce what it means for RBNZ policy. In the case of annual inflation, there is no dissecting to do, with the headline CPI result exactly matching RBNZ priors. Nothing obvious there to divert the Bank from cutting in November, as we forecast, and as its ongoing guidance has suggested.
Sure, the quarterly CPI result was a tick higher than RBNZ priors, but well within its tolerance levels clearly, and usefully, set out in a speech last week. On the other side, annual non-tradeable inflation, at 2.1%, was a tick lower than the central bank anticipated (and, still, generally held down by the reduction in motor vehicle ACC levies).
We see annual CPI then pushing on toward the mid-point of the target band over following quarters and into 2018. Strong economic growth that is putting pressure on existing capacity is part of this view. So too our expectation that previous deflation in the tradeable sector will rapidly fade and even turn mildly inflationary as commodity prices have generally stopped falling and turned higher (and that the NZD does not push materially higher from here).
If inflation does push higher from here, and inflation expectations are more backward looking as the RBNZ has highlighted recently, inflation expectations could push higher relatively quickly and the RBNZ easing bias evaporate. Such an outlook makes further OCR cuts in 2017 more tenuous.
But we are not there yet. At this point, as numbers show, inflation is close to zero. We think the RBNZ would still like to see evidence of inflation pushing higher and, importantly, inflation expectations doing the same. On the latter, the upcoming readings will be important including the RBNZ’s own survey of such due for release on 2 November.”
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
AUD/USD holds above 0.6500 in thin trading
The Australian Dollar managed to recover ground against its American rival after AUD/USD fell to 0.6484. The upbeat tone of Wall Street underpinned the Aussie despite broad US Dollar strength and tepid Australian data.
EUR/USD comfortable below 1.0800 lower lows at sight
The EUR/USD pair lost ground on Thursday and settled near a fresh March low of 1.0774. Strong US data and hawkish Fed speakers comments lead the way ahead of the release of the US PCE Price Index on Friday.
Gold pulls away from daily highs, holds above $2,200
Gold retreats from daily highs but holds comfortably above $2,200 in the American session on Thursday. The benchmark 10-year US Treasury bond yield stays near 4.2% after upbeat US data and makes it difficult for XAU/USD to gather further bullish momentum.
Google starts indexing Bitcoin addresses
Bitcoin address data is live on Google search results after users realized on Thursday that the tech giant started indexing Bitcoin blockchain data. However, mixed reactions have followed the tech giant's reversed stance on the cryptocurrency.
A Hollywood ending for fourth quarter GDP
The latest revisions put Q4 GDP at 3.4%, the second fastest quarterly growth rate in two years. Much of the upside was attributable to stronger consumer spending, yet fresh profits data affirmed it was a good quarter for the bottom line as well with profits up by the most since the Q2-2022.