VIEW: BNZ Believes Major CPI Overshoot Needed To Shift RBNZ

BNZ is expected to Q2 CPI to come in slightly higher than consensus at 1.0% q/q and 5.9% y/y. It sees inflation moderating in a “measured fashion”. But it believes that a significant upside surprise would be needed to shift the RBNZ from its on hold position. The central bank “judged the risks around the inflation projection were broadly balanced”.

• BNZ is forecasting non-tradeables CPI inflation to rise 0.9% q/q compared to the RBNZ at 1.0%. “We also note the Bank’s sectoral factor model version nudged down to an annual 5.7% in Q1, from 5.8% in Q4. This was the first time it had moderated (albeit fractionally) since Q1 2020. … Fingers crossed this key core inflation measure will slow further in Q2.” Tradeables is expected to ease to 5.5% from 6.4%.
• CPI inflation ex food and energy is also worth monitoring as the RBNZ looks at this measure. BNZ expects it to moderate to around 5.7% in Q2.
• “As for some of the stories from the headline CPI in Q2, we expect to see sustained pressure from food prices, slower inflation in residential construction costs, solid increase in rents, and relatively steady fuel prices.”
• “In terms of recent policy changes around fuel, transport fares and clean-car discounts, these, of course, are issues for the Q3 CPI, along with the extent to which local council rates will register a jump.”