VIEW: ANZ Sees Non-Tradeable Inflation In Line With RBNZ

ANZ is expecting Q4 CPI to print at 4.7% y/y in line with consensus but below the RBNZ’s November forecast of 5% but the downward surprise is likely to be driven “entirely by the tradables component”. The domestically-driven non-tradables is forecast to be in line with the RBNZ and “given the RBNZ’s focus on this component, it’s surprise here that will matter for the OCR outlook”.

• “We expect the suite of core inflation measures to move materially lower. This is absolutely what the RBNZ needs to see, but we are cognisant that these measures are also influenced by weaker tradables inflation, whereas the RBNZ’s primary focus is domestic inflation risks.”
• ANZ is forecasting Q4 CPI of 0.6% q/q and 4.7% y/y, slightly higher than consensus on the quarterly rate but in line for the annual one. Tradables is projected at 0.1% q/q and 3.4% y/y and non-tradables at 0.9% q/q and 5.7% y/y.
• The recovery in food production following the early 2023 cyclone, increase airline capacity, lower petrol prices, easing global supply-chain pressures and falling shipping costs are all expected to put downward pressure on Q4 inflation.
• “Monetary policy is working, and given the output gap is now likely negative, the economy has the met the precondition for core disinflation. But progress on getting non-tradables inflation down has been slow to date, which is making the RBNZ antsy. It’s likely a question of timing, but time is finite, particularly given the markets ambition for cuts as soon as May.”