Price Pressures Peaking, Smaller RBNZ Hike In February?

The good news in the NZ Q4 CPI report was the lower-than-expected rise in the domestically-driven non-tradeables component. It looks like inflation, including the domestic component, is rolling over. This is likely to drive a discussion for slowing the pace of RBNZ tightening and may even be enough to result in a 50bp move rather than 75bp at the February 22 meeting. An easing of wage and labour market pressures in the data published on February 1 will be key for an RBNZ pivot.

• Headline CPI moderated to 1.4% q/q from 2% but was stable at 7.2% y/y, slightly higher than expected, and appears to have peaked. Housing and household utilities were the largest contributor to headline inflation in Q4 with the price for building a new house up 14% y/y. Food was the next largest contributor followed by transport.
• The non-tradeable CPI surprised to the downside rising 1.5% q/q after 2% in Q3 and was stable at 6.6% y/y. Higher building costs are driving inflation in this domestic component.
• Tradeable CPI rose a higher-than-expected 1.4% q/q, due to international airfares, but down from Q3’s 2.2% leaving it up 8.2% y/y from 8.1%.
• Goods prices rose 1.1% q/q and 7.9% y/y down from 8.4% last quarter. Services prices rose 2% q/q and 6% y/y, up from Q3’s 5.1%. The 30% trimmed mean rose 1.2% q/q after a peak of 1.7% in Q2.