ANZ: Domestic Inflation Intensifies

ANZ note that “consumer prices rose 1.8% q/q (6.9% y/y) in the March quarter, up from 1.4% q/q (5.9% y/y) previously. That’s lower than our forecast of a 7.4% lift, and consensus expectations (7.1% y/y), but is in-line with the RBNZ’s view that inflation was likely to “peak around 7 percent” in the first half of this year, as expressed in the April Monetary Policy Review.”

• “Imported inflation pressures remain strong, with annual tradables inflation lifting to 8.5% (6.9% previously). But more concerning for the RBNZ is the continued intensification in domestic inflation pressures. Annual non-tradables inflation has accelerated to 6.0% (5.3% previously), and measures of core inflation continue to increase further above the RBNZ’s 1-3% target range.”
• “Today’s data will firm the RBNZ’s resolve that they need to continue to rapidly raise interest rates to get ahead of the domestic inflation pulse, including, we think, with another 50bp OCR hike at the May MPS. Inflation is increasingly permeating through the domestic economy, and with the labour market likely to tighten further yet in 2022, there’s still work to be done to tame inflation, and to keep a lid on inflation expectations.”