Inflation Indicators Heading In Right Direction

Inflation information out since the RBNZ’s last meeting on July 10 is consistent with headline inflation returning “to within the 1 to 3 percent target range in the second half of this year”. But it was mixed enough that the MPC is likely to take some more time before easing and use the August 14 meeting as an opportunity to communicate its intentions.

• Q2 CPI showed headline inflation 0.3pp below the RBNZ’s forecast at 3.3% y/y, but the domestically-driven non-tradeables component remained elevated at 5.4% y/y, 0.1pp above the bank’s projection but 0.4pp lower than Q1. It also continues to print well above the pre-pandemic average. The RBNZ’s measure of core non-tradeables was lower at 4.8% y/y down from 5.1%, but still high. It noted some domestic inflation remains “strong” but there are “signs” it will ease.

Source: MNI - Market News/Refinitiv

• The RBNZ’s measure of core continued to run above headline in Q2 at 3.6% but moderated from 4.2% in Q1.
• Inflation expectations data should reassure the RBNZ with the Q3 business measure moderating further and the 2-year ahead falling to the mid-point of the band. 1-year expectations eased to 2.4% from 2.7%. 1-year median household expectations moderated 0.5pp to 3.5%, while 2-year were steady at the top of the band.
• The July ANZ business survey showed inflation expectations falling to 3.2% from 3.5%, the lowest since September 2021. But cost expectations remained high and pricing intentions and wage expectations picked up.
• Q2 labour costs rose 1.2% q/q, the highest quarterly rate since Q3 2008, driving the annual increase up 0.2pp to 4.3% due to higher public sector agreements. Private wages rose 0.9% q/q up from 0.8% but annual growth moderated with labour market easing. While expected to become more subdued, wages remain an area to monitor.

Source: MNI - Market News/Refinitiv