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NEW ZEALAND: VIEW: Westpac Expects 50bp Feb Cut, Also Upside Risks To 2025 CPI

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Q4 CPI came in close to consensus and RBNZ forecasts with headline steady at 2.2% y/y. Importantly, domestically-driven non-tradeables printed lower than expected at 4.5% y/y, its lowest since Q3 2021. Thus Westpac doesn’t think today’s data would have been a surprise to the RBNZ which it expects to ease 50bp in February due to weak growth. But it doesn’t see all the risks to 2025 inflation to the downside given the soft NZD and global uncertainties.

  • Westpac observes that “while the December quarter did see large increases in some specific areas, price and cost pressures more generally have continued to ease. That was reflected in measures of core inflation which have continued to trend down and are now back inside the RBNZ’s target band.”
  • “Inflation excluding food, fuel and energy costs fell to 3.0% from 3.1%. Trimmed mean inflation fell to 2.4% from 2.5%. Weighted median inflation fell to 2.6% from 2.8%.”
  • “The underlying trend in non-tradables inflation looks in line with expectations for a continued gradual easing in domestic prices. … price and cost pressures have been cooling in parts of the domestic economy that are sensitive to the high level of interest rates.”
  • “Tradables inflation was stronger than expected in the December quarter. However, that was mainly due to the large increase in used car prices. The broader trend in imported inflation remains soft.”
  • “The downturn in imported inflation looks like it is now coming to an end, especially with oil prices pushing higher and the NZD dropping in recent weeks. Over the coming year, even though we don’t expect high levels of tradable inflation, it won’t have the same dampening impact on overall consumer prices that we saw in 2024.”
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Q4 CPI came in close to consensus and RBNZ forecasts with headline steady at 2.2% y/y. Importantly, domestically-driven non-tradeables printed lower than expected at 4.5% y/y, its lowest since Q3 2021. Thus Westpac doesn’t think today’s data would have been a surprise to the RBNZ which it expects to ease 50bp in February due to weak growth. But it doesn’t see all the risks to 2025 inflation to the downside given the soft NZD and global uncertainties.

  • Westpac observes that “while the December quarter did see large increases in some specific areas, price and cost pressures more generally have continued to ease. That was reflected in measures of core inflation which have continued to trend down and are now back inside the RBNZ’s target band.”
  • “Inflation excluding food, fuel and energy costs fell to 3.0% from 3.1%. Trimmed mean inflation fell to 2.4% from 2.5%. Weighted median inflation fell to 2.6% from 2.8%.”
  • “The underlying trend in non-tradables inflation looks in line with expectations for a continued gradual easing in domestic prices. … price and cost pressures have been cooling in parts of the domestic economy that are sensitive to the high level of interest rates.”
  • “Tradables inflation was stronger than expected in the December quarter. However, that was mainly due to the large increase in used car prices. The broader trend in imported inflation remains soft.”
  • “The downturn in imported inflation looks like it is now coming to an end, especially with oil prices pushing higher and the NZD dropping in recent weeks. Over the coming year, even though we don’t expect high levels of tradable inflation, it won’t have the same dampening impact on overall consumer prices that we saw in 2024.”