Monday, April 18, 2016

CPI bang on RBNZ forecast

The March 2016 quarter CPI came in a touch higher than market but bang on Reserve Bank of New Zealand (RBNZ) expectations.  Headline inflation rose 0.2% for an annual rate of 0.4%.  The annual rate is up from 0.1% in the year to December 2015.

The major contributors were broadly as expected with falling airfares and petrol prices keeping overall inflation subdued over the quarter while on the other side of the equation we are finally starting to see some flow through into prices from prior falls in the exchange rate.  There’s only so much margin pressure retailers can take!

While the overall result was in line with RBNZ expectations, the mix was a bit different in that tradeables inflation was a touch weaker than expected while non-tradeables was a bit stronger.  Non-tradeables inflation (i.e. domestically generated inflationary pressures) is more important for the setting of monetary policy.

That said this result shouldn’t derail the RBNZ from delivering its next already-flagged 0.25% interest rate cut.  The question is mostly about timing.  Slightly stronger domestic inflation along with recent data showing some renewed strength in the housing market may see the Bank choose to muse beyond next week’s OCR review and wait until they have rerun all the numbers for the June Monetary Policy Statement.  More on that soon.