Inflation Moderates, Domestic Pressures Persist

While Q4 CPI printed in line with consensus and below the RBNZ’s forecast, the details show that the central bank is likely to remain cautious given persistent domestically-driven inflation. Headline rose 0.5% q/q moderating to 4.7% y/y from 5.6% in Q3. The RBNZ had projected 5% y/y. But the moderation was driven by the tradeables component, while non-tradeables rose 1.1% q/q.

• Housing and utilities drove the 0.5% q/q rise in the CPI but food prices put downward pressure on the index. Statistics NZ notes that around a third of items in the basket fell in Q4, which was “the most in over three years”.
• While the pace of increase in the domestically-determined non-tradeables CPI eased to 1.1% q/q from 1.7% in Q3 and 1.5% in Q4 2022 (data is non-seasonally adjusted), annualised it is still at 4.3%. The annual rate moderated to 5.9% from 6.3%, which remains too high for the RBNZ to feel that the inflation fight has been won.

Source: MNI - Market News/Refinitiv

• Non-tradeables inflation was driven by rents, construction and tobacco products.
• Tradeables fell 0.2% q/q bringing the annual rate down to 3% from 4.7% but there was downward pressure from overseas air transport.
• Both goods and services prices rose 4.7% y/y down around 1pp from Q3. Services posted the lowest rate since Q2 2022 and goods since Q2 2021.
• The RBNZ’s measure of core inflation is also released today at 1500 local time (1300 AEDT).