VIEW: ASB Notes CPI Not As “Benign” As RBNZ Would Have Hoped

ASB notes that Q4 CPI was below the RBNZ’s forecast but was not as “benign” as the central bank would have liked and was somewhat “lopsided”. It believes that the RBNZ will remain concerned that inflation will remain above its target and as a result policy will remain restrictive until it is back in the band. ASB expects the first rate cut around August.

• “We expect a sequence of gradual OCR cuts to begin from the second half of this year (likely August). If, however, progress in lowering inflation stalls, OCR cuts could be delayed until later this year or 2025.”
• The data “did not provide the RBNZ with complete reassurance that its extensive monetary tightening to date is gaining traction”, given annual non-tradable inflation was “a shade under 6%”.
• “The unwinding of the price premium built up over the COVID period is expected to be the key catalyst heralding the return to sub-3% CPI inflation by the second half of this year. However, there is still plenty of uncertainty over the inflation outlook and overall inflation has been above the upper bound of the 1-3% inflation target band for close to 3 years now.”