BNZ: There Is No Room For Inflation Complacency

BNZ estimate “a quarterly increase of 1.5% for Q3. This would reduce the CPI’s annual rate of inflation to 6.5%.”

• “This is in line with the market’s median expectation. As for the risks to our call on the Q3 CPI, we judge these to be skewed to the upside rather than the downside.”
• “This is conscious of not just the component detail but also the re-weighting that Stats NZ very recently announced, which has nudged rounding to right.”
• “Still, the bigger issue is what happens with the various core measures of inflation for the quarter, and beyond.”
• “As some guide to core inflation for Q3, we think nontradables CPI inflation persisted at an annual pace of 6.3%. Then again, the details of our Q3 CPI expectations infer a clear drop in annual CPI inflation excluding food and energy - a core measure we know the RBNZ puts some store in.”
• “With the currency weakening, and the MPC noting that global “core measures of inflation have risen and persist”, there is no room for complacency.”