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Core Inflation Moderating, Non-Tradeables Stubbornly High

NEW ZEALAND
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The RBNZ’s measure of core inflation from its sectoral factor model moderated to 3.6% y/y in Q2 from 4.2%, the lowest since Q3 2021 but still above the central bank’s 1-3% band. It has moderated more than 2pp over the last year but remains above the pre-Covid series average of 2.1% (to 1993). The RBNZ will be reassured that underlying price pressures are easing and more confident that inflation will sustainably return to target. We believe though that it will want to see Q3 CPI on October 16 before cutting rates.

  • Both core tradeables and non-tradeables moderated but as with headline inflation, the bulk of the work was done by the former rising only 0.8% y/y.
  • Underlying non-tradeables inflation moderated to a still high 4.8% y/y in Q2 from 5.1% in Q1 and its peak of 5.5% a year ago. It remains uncomfortably above the pre-Covid series average of 3.1% and the RBNZ is likely to want to see it a lot closer to that mark.
NZ RBNZ sectoral factor model core inflation y/y%

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The RBNZ’s measure of core inflation from its sectoral factor model moderated to 3.6% y/y in Q2 from 4.2%, the lowest since Q3 2021 but still above the central bank’s 1-3% band. It has moderated more than 2pp over the last year but remains above the pre-Covid series average of 2.1% (to 1993). The RBNZ will be reassured that underlying price pressures are easing and more confident that inflation will sustainably return to target. We believe though that it will want to see Q3 CPI on October 16 before cutting rates.

  • Both core tradeables and non-tradeables moderated but as with headline inflation, the bulk of the work was done by the former rising only 0.8% y/y.
  • Underlying non-tradeables inflation moderated to a still high 4.8% y/y in Q2 from 5.1% in Q1 and its peak of 5.5% a year ago. It remains uncomfortably above the pre-Covid series average of 3.1% and the RBNZ is likely to want to see it a lot closer to that mark.
NZ RBNZ sectoral factor model core inflation y/y%

Keep reading...Show less