NZD: Slight relief from inflation – Commerzbank

With an increase of 2.7%, inflation in New Zealand was slightly lower than expected by the market in the second quarter this morning, Commerzbank's FX analyst Volkmar Baur notes.

Inflation is likely to remain a problem

"The NZD therefore lost some ground in its initial reaction. In particular, rents did not rise as strongly as might have been expected based on the monthly CPI indication, so that analysts' expectations (2.8%) were slightly missed. With a price increase of 0.54% compared to the previous quarter, the inflation rate for the past three months is back within the central bank's target range after being significantly too high in the first quarter (0.93% compared to the previous quarter)."

"At over 1% compared with the previous quarter, inflation in services is still well above target. It has also accelerated again compared with the first quarter. However, this is offset for the moment by low goods prices. The inflation figures for the Reserve Bank of New Zealand are therefore not a sign that the all-clear can be given across the board. However, given the weak economic situation, any relief in inflation is very welcome. The economy can certainly use the relief provided by lower interest rates."

"Looking ahead, however, we believe that inflation is likely to remain a problem. We therefore expect the RBNZ to proceed with caution. Lower inflation in the second quarter paves the way for an interest rate cut in August. Unlike the market, however, we believe that this will mark the end of the cycle of rate cuts."