NZ: CPI rose 0.1% in Dec quarter – Westpac

Michael Gordon, Senior Economist at Westpac, notes that New Zealand’s Consumer Price Index (CPI) rose by 0.1% in the December 2017 quarter, less than expected.

Key Quotes

“The annual inflation rate fell from 1.9% to 1.6%.”

“Prices for a wide range of imported items were lower than we expected, suggesting that global inflation pressures remain subdued.”

“We expect inflation to remain in the lower half of the Reserve Bank’s target range over this year, implying no urgency to raise interest rates.”

“Inflation was more subdued than expected at the end of 2017, largely reflecting a lack of price pressures for internationally-traded goods. The Consumer Price Index rose by 0.1% in the December quarter, bringing the annual inflation rate down from 1.9% to 1.6%.”

“Market forecasts were fairly closely clustered around our expectation of a 0.4% rise for the quarter (the Reserve Bank forecast a 0.3% rise in its November Monetary Policy Statement). However, financial markets seem to have been counting on an even stronger result. The New Zealand dollar fell by almost a cent against the US dollar, unwinding some of the gains it has made in recent days. The two-year swap rate fell by six basis points.”

“Today’s result reinforces our view that the need for OCR hikes is a long way off. Despite an improving global economy, inflation – particularly in terms of the manufactured goods that New Zealand imports – remains largely absent. Meanwhile, domestic inflation has picked up from its lows but is still well below pre-financial crisis levels. We expect the RBNZ to remain on hold until late 2019.”