Domestic Price Pressures Sticky, Prolonged Hold

Q1 CPI printed in line with consensus at 0.6% q/q and 4.0% y/y up from Q4’s 0.5% q/q but the lowest annual rate in almost 3 years helped by base effects. The RBNZ is unlikely to be concerned that it came in above its 3.8% y/y forecast as it was expecting some near term volatility. However, the continued stickiness of domestically-driven non-tradeables inflation is likely to keep rates on hold for some time, especially as we’ve seen most of the disinflationary impact from tradeables.

• The non-tradeables CPI rose 1.6% q/q, higher than the RBNZ’s 1.1% forecast, to be up 5.8% y/y, down only 0.1pp from Q4. There are some components in this measure that the RBNZ cannot impact but others it can. In Q1 it was driven by rents, construction of new houses and cigarettes and tobacco. The latter was due to an increase in excise, so outside the RBNZ’s control, but it does have some impact on the other two. Domestic price pressures remain high.
• Services inflation remains a concern rising 1.3% q/q and 5.3% y/y, up from Q4’s 1.1% and 4.7%. It is another sign of sticky domestically driven inflation.
• Rents rose 4.7% y/y in Q1, which Statistics NZ notes is “the highest rate since the series was introduced in September 1999”. High immigration is adding significantly to housing demand.
• Tradeables CPI fell 0.7% q/q, it sharpest quarterly fall since Q2 2020, to be up 1.6% y/y, down from 3.0%. Goods inflation moderated further to 3.3% y/y from 4.7%, lowest in 3 years.
• The RBNZ’s measure of underlying inflation is released today at 1300 AEST. It is expected to continue trending lower.

Source: MNI - Market News/Refinitiv