AUS vs NZ CPI: Cautious tales - ANZ

Jo Masters, Senior Economist at ANZ notes that in New Zealand, Q3 CPI rose by 0.5% q/q, a touch above market consensus of 0.4% q/q and a rise from the flat result in Q2, while in annual terms, headline inflation accelerated to 1.9% y/y from 1.7% the previous quarter.

Key Quotes

“The New Zealand CPI is often seen as providing a guide to the Australian data which will be released on 25 October.”

“Annual headline inflation across the two countries is well correlated – with a coefficient of 0.7 – but the relationship weakens when looking at quarterly outcomes and core inflation.”

“Some relationship is understandable, notably around tradable items such as fuel. Most of the CPI basket in Australia and New Zealand, however, is composed of nontradable items that are influenced by domestic factors. And Australia’s CPI has a much higher weighting for administered goods.”

“Even looking at the direction of forecast ‘misses’ suggests there is little reliable information in the New Zealand data about what the Aussie numbers may print.”

“As such, we would caution against using the New Zealand CPI as a reliable guide to the Australian CPI, either the actual CPI print or risks around forecasts.”