NZ: Headline inflation to ease back to 1.9% in Q2 – ANZ


Phil Borkin, Senior Economist at ANZ expects NZ’s headline inflation to ease back to 1.9% in Q2, from Q1’s 2.2% y/y result while various core measures are expected to print in the 1.5%-2.2% range.

Key Quotes

“We expect a 0.2% q/q lift in the headline CPI for the June 2017 quarter (released 18th July), which would see annual inflation ease back to 1.9% from Q1’s 2.2% print.”

“Some of the typically volatile components will provide offsetting movements in the quarter. Food prices will make another positive contribution (+0.1%pts) despite already recording the largest quarterly lift in 6½ years in Q1. Poor autumn weather has led to a spike in fruit and vegetable prices, which is looking unlikely to unwind until new season product hits the shelves in spring. A drop in petrol prices will largely offset this (-0.1%pts). In fact, falling petrol looks set to drag heavily on Q3 figures as well, dragging annual inflation down to 1.8% (if not below) as the inflation boost from oil prices globally does a sharp U-turn.”

“The housing group will again make a positive contribution (+0.8% q/q), which has been almost an unfailing theme of late. We expect the purchase of housing component to rise by 1.5% q/q, which is roughly the average of the preceding 12 months. We have pencilled in a 0.7% q/q lift in rents, although partial MBIE data does suggest some downside risk to that. Household energy costs are expected to have lifted 0.8% q/q.”

“The broader domestic inflation picture will be a little more hit and miss. That has certainly been the signal from our Monthly Inflation Gauge of late, where non-housing related price pressure is few and far between. In fact, we see overall non-tradable inflation at just 0.3% q/q in Q2, which would hold annual growth at 2.5% y/y.”

“Core inflation measures should be broadly steady. In Q1, some measures of core inflation were actually back above the target-midpoint. The weighted median and 10% trimmed mean were both at 2.2%. However, it wasn’t across the board. Headline inflation excluding food, petrol and energy was steady at 1.6%, and the RBNZ’s Sectoral Factor Model also was stable at 1.5% – where it has been for six consecutive quarters. We are not expecting much change in this picture in Q2.”


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