MNI DATA ANALYSIS: RBNZ's Core Inflation At 7-Year High

By Sophia Rodrigues

     SYDNEY (MNI) - Annual Core inflation in New Zealand accelerated for the

third straight quarter and recorded the largest increase since 2011 due mainly

to an increase in non-tradable inflation.

     Data published by the Reserve Bank of New Zealand Tuesday showed its

preferred measure of core inflation -- the sectoral factor model -- rose 1.7%

y/y in Q2 compared with an upwardly revised 1.6% rise in Q1, and 1.5% increase

in Q4 last year.

     The 1.7% y/y increase was the largest since Q2 of 2011 when sectoral factor

model measure of inflation rose 1.7%. The factor model of inflation rose 1.8%

y/y in Q2, accelerating from 1.6% rise in Q1.

     The data is derived from consumer price index inflation published by

Statistics New Zealand earlier Tuesday which showed a slowing in Q2 CPI in q/q

terms but an acceleration in y/y terms to +1.5% from +1.1% in Q1.

     The data removes downside risk to the RBNZ's official cash rate for now,

but the outlook for monetary policy would depend on the growth prospects for the

domestic economy which is showing signs of faltering, and also for global

growth.

     The acceleration in sectoral model inflation was mainly due to rise in the

non-tradable component which rose 2.7% in Q2, marking the fastest pace since Q3

of 2011. The tradable component has risen 0.5% y/y for three straight quarters.

     The RBNZ's sectoral factor model of core inflation separates components of

the CPI into tradables and non-tradables. By distinguishing between these two

sectors, the prices of which are widely regarded as being influenced by

different things, the model allows an interpretation of what is driving core

inflation, according to the RBNZ.

--MNI Sydney Bureau; tel: +61 2-9716-5467; email: sophia.rodrigues@marketnews.com

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