Dovish If CPI Prints Around RBNZ’s 3.8%

Q1 CPI prints this morning and is forecast on Bloomberg to post a higher quarterly rise than in Q4 but the annual rate should continue to ease. Consensus expects headline CPI to rise 0.6% q/q after 0.5% in Q4 to be up 4.0% y/y down from 4.7% helped by base effects (Q1 2023 rose 1.2% q/q). While consensus is above the RBNZ’s forecasts, the central bank is likely to look through a Q1 miss, as it is aware of near-term upside risks from volatile components.

• Non-tradeable inflation is expected to remain elevated at 1.3% q/q though up from 1.1%, while tradeables should again fall by 0.2% q/q.
• In February, the RBNZ projected a 0.4% q/q rise in Q1 CPI with the annual rate easing to 3.8% y/y. This is at the lower end of consensus expectations which are between 0.4% and 0.8% q/q and 3.7% and 4.2% y/y. The main difference between the RBNZ and other forecasters is that the central bank is expecting a larger drop in tradeables of 0.8% q/q. It would be a dovish outturn, if the central bank is correct and the CPI prints around 3.8% or below.
• There is the risk that non-tradeables inflation again prints to the upside, which would be seen as hawkish. There are some components in this measure that the RBNZ cannot impact but others it can, such as accommodation and insurance. It would show that domestic price pressures remain high, especially as wages growth remains elevated. On the other hand, if it surprises to the downside, then the RBNZ would be assured that demand is slowing as needed.