Headline Inflation To Ease, Domestically Driven To Remain High

Today the New Zealand Q4 CPI release will be in focus. It is expected to have eased in Q4 but remain worryingly elevated. The details will be important to evaluate the extent of domestically-driven price pressures. The RBNZ next meets on February 22 and a 75bp hike is currently expected. A weaker-than-expected CPI print and signs of easing domestic pressures would be needed to alleviate RBNZ concerns.

• The Bloomberg consensus has a 1.3% q/q rise in headline CPI after 2.2% in Q3. This would bring the annual rate down slightly to 7.1% from 7.2%. There is quite a range of estimates from 0.9% q/q at the low end to 1.8% at the high. Most forecasts are in the 1.1% to 1.4% range.
• The tradeable CPI is expected to rise 0.8% q/q compared to 2.2% the previous quarter, as commodity prices have moderated. This would drive the annual rate down to 7.5% y/y from 8.1%. Fewer analysts forecast tradeables inflation but projections range from 0.3% to 1.1% q/q.
• Domestically-driven non-tradeables prices are forecast not to moderate as much with 1.7% q/q expected (Q3 2%), which would result in another annual pickup to 6.8% y/y from 6.6%. The tight labour market and the increase in demand from the tourism recovery are likely to have kept the pressure on domestic prices. The range of forecasts is from 1.4% to 2% q/q. While lower than Q3, the quarterly expectation is still well above the series average of 0.8% q/q and would be the second highest reading since Q3 2021. The RBNZ is likely to remain concerned about inflation with another elevated reading of this component.