VIEW: ASB Expects First Cut In Feb Due To Sticky Domestic Inflation

ASB notes that while Q1 headline inflation came in above the RBNZ’s 3.8% forecast, it is the persistence of domestic inflation pressures that is likely to worry the central bank. It believes that the RBNZ will be concerned that inflation could be “stuck above 3%” and as a result, ASB has pushed out its expected first rate cut to February 2025.

• “Some of the price rises that occurred in Q1 were outside of the RBNZ’s control, while others were one-offs. Nevertheless, the price pressures were broad based enough to concern the RBNZ that recent downward momentum could be stalling.”
• “We don’t think the data will prompt the RBNZ into doing more, so to speak. Activity data are very weak and highlight that monetary policy is working. However, absent of clear evidence that domestic and core inflation measures are heading back to target, the risk is clearly skewed to the RBNZ joining the slower to lower camp of central banks.”
• “The ongoing strength in domestically-generated inflation was evident throughout the numbers. Enduring price rises in sectors of the economy highlight that the RBNZ will not be in any rush to ease monetary policy. Indeed, it raises the risk that it will now take longer until the RBNZ is confident that inflation is trending back towards the midpoint of the 1-3% inflation target, on a sustained basis.”