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NEW ZEALAND: VIEW: BNZ Expects Easing To Slow As CPI Surprise To Upside

NEW ZEALAND
APACNew ZealandBulletMarketsFixed Income BulletsForeign Exchange Bullets

Q4 NZ CPI printed close to the RBNZ’s forecasts. BNZ believes that the data won’t change the central bank’s view as it also didn’t alter its own view of 50bp of easing in February. It sees a greater chance of 25bp than 75bp. BNZ also believes that the pace of easing will moderate to 25bp from April as inflation surprises to the upside. 

  • BNZ notes that “hawks will take some solace that headline inflation was 0.1% higher than the Bank had assumed and when those aforesaid hawks ferret around in the data they may get excited by the fact that the seasonally adjusted move for the quarter was 0.8%, that’s an annualised 3.2%”.
  • … and “the doves seem to have just gained the upper hand in terms of market pricing with the market edging back to fully pricing in a 50 basis point cut at the February meeting.”
  • BNZ believes the pace of RBNZ easing will slow “because we still think annual CPI inflation will climb over the next quarter or so and, in so doing, risks nudging inflation expectations higher. The RBNZ can easily look through bumps in the road generated by such things as the recent surge in oil prices but will not be comfortable if inflation expectations move higher. The falling currency also adds a medium term inflationary pulse.”
  • “The deviation between goods and services inflation remains stark. Goods prices were actually unchanged in the quarter and up only 0.6% for the year. In contrast services prices rose 1.4% to be 4.8% higher than a year ago.”
  • The 8.6% y/y drop in fruit & veg prices is “unlikely to be repeated” and will “add at least 0.2% to the CPI in the year ahead”. “Similarly, the non-repetition of the 23% cut in early childhood education costs will add another 0.1%.”
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Q4 NZ CPI printed close to the RBNZ’s forecasts. BNZ believes that the data won’t change the central bank’s view as it also didn’t alter its own view of 50bp of easing in February. It sees a greater chance of 25bp than 75bp. BNZ also believes that the pace of easing will moderate to 25bp from April as inflation surprises to the upside. 

  • BNZ notes that “hawks will take some solace that headline inflation was 0.1% higher than the Bank had assumed and when those aforesaid hawks ferret around in the data they may get excited by the fact that the seasonally adjusted move for the quarter was 0.8%, that’s an annualised 3.2%”.
  • … and “the doves seem to have just gained the upper hand in terms of market pricing with the market edging back to fully pricing in a 50 basis point cut at the February meeting.”
  • BNZ believes the pace of RBNZ easing will slow “because we still think annual CPI inflation will climb over the next quarter or so and, in so doing, risks nudging inflation expectations higher. The RBNZ can easily look through bumps in the road generated by such things as the recent surge in oil prices but will not be comfortable if inflation expectations move higher. The falling currency also adds a medium term inflationary pulse.”
  • “The deviation between goods and services inflation remains stark. Goods prices were actually unchanged in the quarter and up only 0.6% for the year. In contrast services prices rose 1.4% to be 4.8% higher than a year ago.”
  • The 8.6% y/y drop in fruit & veg prices is “unlikely to be repeated” and will “add at least 0.2% to the CPI in the year ahead”. “Similarly, the non-repetition of the 23% cut in early childhood education costs will add another 0.1%.”