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VIEW: ASB Sees Inflation Uncertainty Keeping Policy Restrictive

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ASB believes uncertainty around the inflation outlook will keep RBNZ policy restrictive for now. In Q1, it expects Q1 CPI to print slightly higher than consensus at 0.7% q/q and 4.1% y/y. It is forecasting both non-tradeables and tradeables to be higher than the RBNZ’s projections in February, which is why its headline CPI is significantly higher. The RBNZ CPI forecast is at 0.4% and 3.8%. The main factor driving the difference is tradeables, which ASB expects to fall 0.1% q/q compared with the RBNZ at -0.8%. ASB also sees core inflation continuing to trend down.

  • “We still expect headline inflation to fall back below 3% by Q3 24, driven predominantly by easing global inflation. But uncertainty over the inflation outlook is still high. Lingering upside risks, including to tradable inflation, suggest the RBNZ will continue to err on the side of caution. As a result, we continue to expect restrictive OCR settings will be in place for some time to come. Absent of any large deflationary shock in the near term, we don’t expect rate cuts until November 2024.”
  • “Cooling global goods inflation is weighing on tradable prices, with lower fuel prices also impacting the quarterly print.”
  • “Non-tradable inflation remains stickier, with a solid 1.3% quarterly print pencilled in. Higher alcohol and tobacco prices are the main contributor to non-tradable inflation and will be largely ignored by the RBNZ. However, higher housing costs, insurance, food prices and accommodation costs are also boosting the non-tradable print.”
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ASB believes uncertainty around the inflation outlook will keep RBNZ policy restrictive for now. In Q1, it expects Q1 CPI to print slightly higher than consensus at 0.7% q/q and 4.1% y/y. It is forecasting both non-tradeables and tradeables to be higher than the RBNZ’s projections in February, which is why its headline CPI is significantly higher. The RBNZ CPI forecast is at 0.4% and 3.8%. The main factor driving the difference is tradeables, which ASB expects to fall 0.1% q/q compared with the RBNZ at -0.8%. ASB also sees core inflation continuing to trend down.

  • “We still expect headline inflation to fall back below 3% by Q3 24, driven predominantly by easing global inflation. But uncertainty over the inflation outlook is still high. Lingering upside risks, including to tradable inflation, suggest the RBNZ will continue to err on the side of caution. As a result, we continue to expect restrictive OCR settings will be in place for some time to come. Absent of any large deflationary shock in the near term, we don’t expect rate cuts until November 2024.”
  • “Cooling global goods inflation is weighing on tradable prices, with lower fuel prices also impacting the quarterly print.”
  • “Non-tradable inflation remains stickier, with a solid 1.3% quarterly print pencilled in. Higher alcohol and tobacco prices are the main contributor to non-tradable inflation and will be largely ignored by the RBNZ. However, higher housing costs, insurance, food prices and accommodation costs are also boosting the non-tradable print.”