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ASB: Soft Headline Masks Solid Core

NEW ZEALAND

ASB write “today’s CPI release confirmed that the signal provided by cooling sentiment measures was genuine, with past OCR hikes looking to be gaining traction. Much of the surprise was for weaker-than-expected tradable goods prices, with both global and local catalysts at work. Inflation from the more persistent and policy-relevant domestic and core inflation measures remained well above the 1-3% inflation target band. However, there were tentative signs that core inflation pressures are topping out and should subsequently ease; that will be encouraging to the RBNZ.”

  • “The inflation outlook is inherently uncertain, with the full inflation impacts of Cyclone Gabrielle are yet to come. The RBNZ’s ‘least regrets’ analysis will highlight the risks of a more protracted period of high inflation and the much greater economic damage that this could cause. On balance, we expect a further 25bp OCR increase in May (to 5.5%), with the RBNZ needing to impose restrictive OCR settings for a concerted period to push inflation lower. However, we look be nearing the peak of the OCR hiking cycle. OCR cuts will only be contemplated when sub 3% CPI inflation is in prospect, but this is unlikely to be seriously considered until well into 2024.”
MNI London Bureau | +44 0203-865-3809 | anthony.barton@marketnews.com
MNI London Bureau | +44 0203-865-3809 | anthony.barton@marketnews.com

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