Te Whanganui-a-Tara – Aotearoa’s latest annual consumer price index (CPI) inflation just released today shows it has decelerated to a still eye-watering 6.7 percent in Q1 or 2023, ANZ bank research says.
The result, was weaker than ANZ’s forecast of 7.2 percent and a decent clip below the Reserve Bank’s February forecast of 7.3 percent.
But the surprise was largely in the tradables component, the more volatile and less persistent kind of inflation.
Non-tradables inflation, the sticky kind of inflation, came in at 1.7 percent quarter on quarter, weaker than the February forecast of 1.9 percent but in line with the ANZ forecast.
The Reserve Bank forecast didn’t prevent annual non-tradables inflation from accelerating. It’s now running at 6.8 percent year on year, which is more than double the ~three percent annual pace that has historically been associated with headline inflation running close to the 2 percent target midpoint.
In fact, annual non-tradables inflation is at a record high. So despite the weaker non-tradables starting point and weaker headline, ANZ does not think the sound of corks popping will be resonating through the RBNZ’s offices tonight.
Core inflation measures were a mixed bag. CPI excluding food, fuel, and energy fell to 6.5 percent year on year (6.7 percent previously).
Trimmed mean measures eased at almost all levels of trim but was flat at 6.1 percent at the 30 percent trim-level. Meanwhile, weighted median inflation accelerated 0.6 percent points to 5.6 percent.
Tradables inflation, largely imported, came in at 6.4 percent year of year (8.2 percent previously), well below ANZ and the Reserve Bank’s forecast of 7.4 percent. There was a fair bit of noise in this read but nothing new, ANZ says.
All up, the new data means the Reserve Bank will be heading into its second period starting point surprise for non-tradable inflation under the belt.
That’s great news, but there are offsets. There could be more fiscal stimulus to lean against. People will know on more on Budget day, and the Reserve Bank may have more cyclone-related inflation to bake into their outlook, as signalled in the April monetary policy review.
So while markets may be chomping at the bit to price in cuts from late 2023 and early 2024, ANZ is not convinced the monetary policy committee will be eager to deliver them any time soon . Inflation went their way today, but the war on high and sticky inflation is far from won.
Today’s data is likely not enough to be seen by the Reserve Bank warranting a pause, but it should rule out another 50bp hike.
