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20 Apr 2015
Underlying NZ inflation to stay low, RBNZ to cut rates before year end - Capital Economics
FXStreet (Bali) - Paul Dales, Chief Australia & New Zealand Economist, shares his take on the NZ CPI Q1 2015 data, noting that underlying inflation will stay low, and that should force the RBNZ to cut interest rates before the end of the year.
Key Quotes
"The petrol-related plunge in headline CPI inflation in New Zealand, to a 16-year low of 0.1% in Q1 from 0.8% in Q4, will grab all the headlines, but it is the weakness of underlying/core inflation that will influence the future path of policy. This supports our view that the RBNZ will cut interest rates before the end of the year."
"The 0.3% q/q (non-seasonally adjusted) fall in consumer prices in Q1 was exactly in line with our forecast and in between the consensus forecast (-0.2%) and the RBNZ's projection (-0.4%). The huge 11% q/q fall in petrol prices was the main drag, but the real surprise (to everyone else at least) was the weakness of underlying prices."
"Non-tradable prices rose by 1.1% q/q and by just 2.3% (2.4% in Q4) over the past year (the slowest since Q4 2012). The 2.2% q/q drop in tradable prices was more than we would expect at this time of the year and took the annual inflation rate down from -1.3% in Q4 to a new record low of -2.8%. Core prices (exc. food and energy) rose by just 0.1% q/q and the annual inflation rate fell to 0.8%. That's the first time it has been below 1% since first being published in 1999."
"Looking ahead, with petrol prices now rising, headline inflation will rebound in Q2. But we believe that a softening in GDP growth this year will prevent underlying inflation from rising as far as the RBNZ expects and will instead keep it close to the lower bound of the 1-3% target range. This underpins our forecasting that the RBNZ will cut rates to 3.0%, from 3.5%, by December."
Key Quotes
"The petrol-related plunge in headline CPI inflation in New Zealand, to a 16-year low of 0.1% in Q1 from 0.8% in Q4, will grab all the headlines, but it is the weakness of underlying/core inflation that will influence the future path of policy. This supports our view that the RBNZ will cut interest rates before the end of the year."
"The 0.3% q/q (non-seasonally adjusted) fall in consumer prices in Q1 was exactly in line with our forecast and in between the consensus forecast (-0.2%) and the RBNZ's projection (-0.4%). The huge 11% q/q fall in petrol prices was the main drag, but the real surprise (to everyone else at least) was the weakness of underlying prices."
"Non-tradable prices rose by 1.1% q/q and by just 2.3% (2.4% in Q4) over the past year (the slowest since Q4 2012). The 2.2% q/q drop in tradable prices was more than we would expect at this time of the year and took the annual inflation rate down from -1.3% in Q4 to a new record low of -2.8%. Core prices (exc. food and energy) rose by just 0.1% q/q and the annual inflation rate fell to 0.8%. That's the first time it has been below 1% since first being published in 1999."
"Looking ahead, with petrol prices now rising, headline inflation will rebound in Q2. But we believe that a softening in GDP growth this year will prevent underlying inflation from rising as far as the RBNZ expects and will instead keep it close to the lower bound of the 1-3% target range. This underpins our forecasting that the RBNZ will cut rates to 3.0%, from 3.5%, by December."