NZ: Expect a 0.7% q/q lift in headline CPI for the March 2017 quarter - ANZ

Phil Borkin, Senior Economist at ANZ, expects a 0.7% q/q lift in the NZ’s headline CPI for the March 2017 quarter (released 20th April), which would lift annual inflation to 1.9% – the highest since Q3 2011. 

Key Quotes

“Petrol, food, seasonal factors and base effects account for a big part of the lift. Petrol and food prices will together make a 0.65%pt contribution, while the seasonal lift in tobacco prices will add a further 0.25%pts. Outside of that, the pulse is soft. With a mechanical bounce from the large fall in petrol prices from Q1 2016 dropping out, annual tradable inflation should rise to 1.4%, which is the first time in positive territory since Q2 2014, and the highest since Q3 2011.” 

“With inflation back at target (or close to it), some may argue that the RBNZ should be shifting from its neutral stance. The figures are certainly expected to print well north of the RBNZ’s February MPS forecast of 0.3% q/q (1.5% y/y). However, we doubt the data will alter the RBNZ’s thinking greatly. The RBNZ was reasonably explicit in March that it is discounting the impact of “one-offs”.” 

“For the RBNZ, the far more important issue is whether inflation is going to stabilise around target. And we doubt the rest of the CPI figures will provide a clear answer. Our Monthly Inflation Gauge suggests that outside of housing, domestic inflation pressures remain surprisingly benign. We see non-tradable inflation at 0.9% q/q in Q1, but that is really just seasonal, with annual non-tradable inflation ticking down a touch to 2.3%. Deflationary influences from the NZD and global scene should continue to be evident across the non-food and petrol tradable space. In addition to this, the peak impact from earlier petrol price gains is occurring right about now and the food price spike should also start to unwind.” 

“We expect to see this mixed picture within the broader details in the quarter: 

• The housing and household utilities will again make a positive contribution. We have pencilled in a 0.5% q/q lift, driven by implied construction costs (0.8% q/q) and rents (0.6% q/q).
• Prices for some durable retail goods should fall on ongoing retail competition and earlier NZD strength. We expect lower prices for furniture, appliances, new cars, telecommunication equipment and audio equipment. Clothing and footwear prices are also expected to fall a touch.
• There will be the usual seasonal movements. The education group should rise around 2½% q/q on fee increases, while international airfares should record a large quarterly drop (-12% q/q). As mentioned, tobacco prices will make a large positive contribution as has become a common occurrence in March quarters.”