Underlying Inflation Fails To Ease In Q2, Watch & Wait

The RBNZ’s sectoral factor model measure of underlying CPI was steady at 5.8% y/y in Q2 for the third consecutive quarter also pointing to sticky core inflation (see MNI CPI Consistent With RBNZ Forecast, Domestic Measures Sticky). This is the historical peak with the series starting in 2002. With headline CPI printing in line with the RBNZ’s forecast, this development is unlikely to shift them to tighten again before the October election, but core price pressures will be monitored closely and if their stickiness risks target being achieved in H2 2024 then the bank may move again. It is worth noting that given the 91% correlation with Australia’s trimmed mean CPI, there is a risk that Q2 underlying inflation also remains high there.