Lower Headline, Solid Non-Tradeables, RBNZ Core Coming Up

Q2 headline CPI came in moderately lower than expected at 0.4% q/q with the annual rate easing to 3.3% from 4%. It is now approaching the top of the 1-3% RBNZ target. The RBNZ had forecast 0.6% q/q and 3.6% in May. The important domestically-driven non-tradeables is moderating but came in slightly higher than the RBNZ expected and is unlikely to be enough for them to ease at the August 14 meeting, which is likely to be when it chooses to communicate rather than move.

NZ CPI y/y%

Source: MNI - Market News/Refinitiv

• The quarterly rise in headline CPI was due to housing (rents +1.2% q/q & 4.8% y/y) and utilities (electricity 3% q/q) but recreation fell.
• Non-tradeables rose 0.9% q/q to be up 5.4% y/y down from 5.8% in Q1. While it is the lowest quarterly rise since Q1 2021, it is still above the pre-Covid era average. The annual rate remains materially higher. The main drivers of the annual increase were rent, insurance and tobacco. Services prices rose 0.6% y/y which left the annual rate at 5.3% y/y.

Source: MNI - Market News/Refinitiv

• Tradeables inflation was weaker than expected and the driver of the softer headline result. It fell 0.5% q/q to be up 0.3% y/y, third straight quarterly decline. Higher prices for petrol, groceries and accommodation were partly offset by fruit & vegetables and passenger transport.
• The RBNZ’s measure of core from its sector factor model is also published today and ANZ expects it to fall below 4%. The release includes underlying non-tradeables inflation too.