VIEW: Kiwibank Expects Inflation To Return To Target In Q3

Kiwibank is expecting Q1 CPI to print 0.2pp above consensus at 0.8% q/q and 4.2% y/y. It believes that higher imported inflation will result in inflation being above RBNZ February expectation, but domestic inflation should continue to ease. It expects inflation to return to the target band in Q3 with the first rate cut unlikely to follow until the first meeting post the data which will be November 27.

• Kiwibank says that “a downside surprise would be warmly welcome. However, stronger imported inflation than the RBNZ expects will likely see headline print above 4%. Nonetheless, more important for monetary policy is domestic inflation. And the worst is over. We expect an easing in domestic inflation to 5.4%yoy, from 5.9%.”
• “While all eyes will zero in on the headline print, the underlying trend is perhaps more important. Core inflation – removing volatile prices – appears to have peaked in late 2022, and currently sits at 4.1%. We expect the downtrend to continue. But it’s still a long way back to target.”
• “Inflation will continue to fall from here, but risks to the RBNZ’s forecasts are tilted to the upside, in turn delaying the start-date of rate cuts. Indeed, we will likely see bets for rate cuts as early as August pared back and pricing pushed out should the official number print above the RBNZ’s 3.8%. The Kiwi should also receive a boost following an upside surprise.”