NEW ZEALAND: Westpac On NZ Food Prices & Broader Inflation trends
The local bank doesn't see today's food inflation surge will alter next week's RBNZ outcome. However, some trends in inflation are worth watching beyond next week's meeting outcome.
Westpac: "Overall, today’s update suggests some upside risk to our forecast for 0.6% growth in consumer prices in the first quarter of 2025. However, most of the surprise was in food prices or other volatile areas, so might reverse over the coming months.
More notable is the continued softness in domestic costs like rents and hospitality charges. That is consistent with softness in domestic demand.
Overall, we don’t think today’s update will cause too much alarm for the RBNZ ahead of next week’s policy meeting. We still think the RBNZ will deliver a 50bp cut on 19 February.
However, the underlying detail of inflation is changing. Domestic pressures are still easing. But the weakness in imported costs that has pulled inflation down over the past year looks like it is ending. Combined with the fall in the NZD, that’s likely to see inflation linger in the upper part of the RBNZ target range over the year ahead. And that could be an important consideration for the RBNZ’s policy stance beyond February."