ANZ: CPI - The Devil In The Detail

ANZ “anticipate annual CPI inflation was flat at 7.2% in Q4 2022, a touch below the RBNZ’s November MPS forecast of 7.5%.”

• “However, with labour shortages remaining acute and the resurgence of international tourism injecting fresh demand into our supply-constrained economy, we expect non-tradables inflation rose to 6.9% Y/Y (RBNZ: 7.0%), versus 6.6% in Q3. Core inflation measures may also print higher again in Q4.”
• “The Q4 QSBO and the December ANZBO suggest the economy could lose momentum faster than the RBNZ forecast in the November MPS. But with actual and expected price and cost measures in the QSBO increasing in Q4, it’s not clear the RBNZ will feel they have the flexibility to ease back on the aggressive pace of OCR hikes.”
• “We continue to forecast a second 75bp OCR hike at the February meeting. It’s looking like the RBNZ may get a downside surprise on headline inflation, but that’s probably not a domestic inflation story. The best-case scenario would be much lower non-tradables inflation than expected, which, combined with leading indicators falling rapidly, could be the trigger that would see the RBNZ move to smaller hikes. Unfortunately, we suspect non-tradables inflation will get worse before it gets better.”