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New Zealand: March 2016 CPI review - ANZ

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Apr 13, 2016.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

    Oct 7, 2015
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    Mark Smith, Senior Economist, at ANZ explained that they expect a 0.1% increase in overall consumer prices in the March quarter, slightly below the RBNZ’s March MPS pick of 0.2%, with annual CPI inflation rising to 0.4%, the seventh consecutive quarter below 1%.

    Key Quotes:

    "Offsetting movements are expected for tradable (-0.8% q/q, -1.0% y/y – a 17-year low) and non-tradable prices (+0.8% q/q, +1.4% y/y), with falls in fuel prices broadly offset by higher prices for tobacco and education, the latter both being seasonal. Housing is expected to feature on the upside, but outside of that we expect a subdued inflation picture.

    Core inflation measures produced by Statistics New Zealand are expected to come in a ½% to 1½% annual range.

    A low headline inflation starting point and its larger-than-previously flagged impact on price and wage setting behaviour (RBNZ research) is on the face of it another tick in the box for a lower OCR, and sooner rather than later.

    We concur that the OCR is headed lower (the recent push higher in the NZD being one of many reasons) but are still wary of the trade-offs a lower OCR will bring: Household leveraging behaviour and sharply rising house prices are traditionally a strong inflationary mix; we expect housing to feature in the Q1 CPI results but not to dominate.

    The economy is on a reasonable footing and capacity is being eroded; some components are expected to show a demand pull aspect, although again they are not expected to dominate.

    Our modelling work flags some potential upside to the RBNZ’s Sectoral Factor Model measure of core inflation (1.6% in Q4). If that occurs, it will be the fourth successive quarterly rise. This measure doesn’t change direction much (unlike the trimmed mean and weighted median measures) and so appears a more accurate barometer of underlying inflation trends.

    At this stage, we don’t believe the CPI data will be enough to see the RBNZ pull the OCR trigger this month, given surging asset prices and the re-emergence of re-leveraging type behaviour. However, the decision is certainly “live”.
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