ANZ note that "the combination of.......>

NEW ZEALAND: ANZ note that "the combination of rising oil prices, a depreciating

NZD & lift in fuel tax has seen petrol prices at the pump hit record highs.

While we saw the taxes coming, we did not anticipate oil prices would rise as

sharply. Passing higher-than-exp. petrol prices through to our headline CPI

forecast lifts the q/q change by 0.1%pts in both Q3 & Q4 to 0.6% & 0.4%

respectively. That would see annual inflation hit 1.7% in Q3 & 2.0% in Q4, well

above the RBNZ Aug MPS forecast of 1.4% & 1.6%. From there, we expect headline

inflation to tick above the mid-point of the RBNZ's target band, hitting 2.2%

y/y in Q1 & Q2 next year, but only temporarily. We exp. the RBNZ will look

though the tradable inflation bump as a transitory shock. The RBNZ will be

focused on the persistent trend in inflation. As such, non-tradable & core

inflation, along with medium-term inflation expectations, will be more important

for assessing the underlying inflation pulse, even if headline inflation

surprises on the upside on account of higher tradable inflation. Unlike the

RBNZ, we are not forecasting a gradual and persistent rise in inflation over the

next  years. We exp. annual inflation to moderate to 1.6% by end '20."