NZ: CPI rose 0.5% in Sep quarter, annual inflation 1.9% - Westpac
New Zealand’s Consumer Price Index (CPI) rose by 0.5% in the September 2017 quarter as both headline and underlying measures showed inflation close to, but slightly to the lower side of, the Reserve Bank’s target midpoint, according to Michael Gordon, Senior Economist at Westpac.
Key Quotes
“Consumer prices rose 0.5% in the September quarter, right in line with our expectations. The result was slightly above the median market forecast of a 0.4% rise, and quite a bit higher than the 0.2% increase that the Reserve Bank had forecast in its August Monetary Policy Statement.”
“The annual inflation rate rose from 1.7% to 1.9%, putting it just a touch below the 2% midpoint of the Reserve Bank’s target band. Various measures of core inflation, which adjust for one-offs and volatile items, all tell a similar story: annual inflation was either steady or up slightly for the quarter, and generally sitting at 2% or a little below.”
“We wouldn’t make too much of the RBNZ’s forecast ‘miss’, for two reasons. One is that most of the difference was on the tradables side of the CPI, most likely reflecting developments in food and fuel prices in the two months since the RBNZ made its forecast. These prices tend to be volatile from one quarter to the next, and while the RBNZ can’t ignore them altogether, it has scope to look through any price changes that appear to be driven by temporary factors.”
“The second reason is that, in one respect, this was actually a helpful result for the RBNZ. In August the RBNZ was forecasting inflation to fall below 1% again next year, albeit briefly, as the weather-related spike in food prices early this year dropped out of the calculation. This wouldn’t have been a breach of the inflation target by any stretch, but it might have required some uncomfortable explaining. With today’s result, the RBNZ is less likely to find itself in that position (we expect annual inflation to bottom out at 1.1% next year).”
“Housing-related prices continue to rise, but their impact on inflation may have passed its peak.”
“Without stronger sources of price growth elsewhere, the risks around the Reserve Bank’s medium-term inflation target lie to the downside.”
Author
Sandeep Kanihama
FXStreet Contributor
Sandeep Kanihama is an FX Editor and Analyst with FXstreet having principally focus area on Asia and European markets with commodity, currency and equities coverage. He is stationed in the Indian capital city of Delhi.
