VIEW: Westpac Sees Sticky Core Inflation Keeping 2024 Rates On Hold

Westpac observes that NZ’s high inflation is abating but that “it’s a mixed picture beneath the surface”, as domestically-determined prices “continued to sizzle”. It believes that the RBNZ will be pleased that headline inflation has moderated to 4.7% but because of underlying and domestic pressures is likely to keep rates at 5.5% through 2024.

• “Driving the fall in inflation and the continued downside surprises to the RBNZ’s forecasts has been lower import prices. Much of that relates to volatile items like food and motor vehicles. However, movements in those sorts of volatile items are not the key focus for the RBNZ when setting monetary policy.”
• “On an annual basis, non-tradables inflation is running at a still-strong rate of 5.9%, with particular strength in areas outside of the construction sector. Those lingering domestic price pressures mean that it will still be some time before overall inflation returns to levels consistent with the RBNZ’s target.”
• “Ongoing sticky core inflation will likely be viewed with caution by the RBNZ and emphasises that there is still work to do before they can be sure that inflation reaches 2% in the second half of 2025 as is required by their new more focused mandate.”