Westpac Revises Down Q2 CPI Forecast Post Monthly Price Update

The local bank has revised down its Q2 inflation forecast post today's monthly price update. See below for more details.

WESTPAC: "Stats NZ now provides monthly updates on 45% of the CPI. The May prices update was weaker than we had expected. As a result, we have revised our forecast for the June quarter CPI to 0.6%, down from our previous forecast for a 0.8% rise. That would see annual inflation slowing to 3.6% (down from 4% in the year to March). The June quarter CPI figures will be released on 17 July. Our updated forecast is in line with the RBNZ’s last published forecast from May.

Today’s outturn removes some of the upside risk for inflation that we had previously highlighted, and moves our forecast in line with the RBNZ’s pick. Notably, the easing in inflation is occurring in discretionary spending areas (such as takeaway food), which tend to be sensitive to interest rates. That’s a sign that monetary policy is working. Today’s result also adds to the likelihood that inflation will slip back inside the RBNZ’s 1% to 3% target band by the end of this year. However, there is still a hard sticky core of domestic inflation pressures in areas such as rent, utilities and council rates, and insurance. That will still be worrying the RBNZ, with a return to 2% inflation still a long way off."