RBNZ to move on low inflation back drop? - ANZ

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Jan 19, 2016.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

    Oct 7, 2015
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    FXStreet (Guatemala) - Analysts at ANZ noted that headline consumer prices fell 0.5% in the December quarter (-0.2% sa), weaker than the market consensus and the December MPS pick of a 0.2% fall.

    Key Quotes:

    "Annual CPI inflation fell to 0.1%, the lowest since September 1999, the fifth consecutive outturn below 1% and the 17th successive outturn below 2%.
    Lower tradable prices dominated the result (down 1.8% q/q, -1.2% sa, -2.1% y/y), falling by more than expected. Seasonality and lower global commodity prices played a major role, with seasonally lower food prices (down 2.1% q/q) and the 7% fall to petrol prices apparent."

    "There were also few signs the disinflationary impact of past NZD strength was abating, with falls for prices for motor vehicles, telecommunications equipment, package holidays, household textiles and appliances. So far, competitive pressures were proving an effective inflation suppressant, with Statistics NZ reporting that 14% of retail items were discounted in Q4"

    "There were still some increases – notably international airfares - but these look to be short-lived given the impact of lower oil prices and increasing competition."

    "Non-tradable prices rose 0.5% q/q% (+0.5% sa), with annual inflation rising to 1.8% y/y. This was stronger than both our and the RBNZ pick of a 0.2% q/q increase, with the surprise looking to be due to some recoil from the soft Q3 print for some components rather than indicating a firming in domestic cost pressures, consistent with the spirit of our Monthly Inflation Gauge (+0.3% q/q). Construction cost inflation remained elevated (+1.2% q/q, +5.0% y/y), with the front for inflationary pressure shifting north with annual increases the highest in Auckland (+7.2% y/y). Dwelling rental inflation is starting to stir (+0.6% q/q, +2.5% y/y), with rental inflation the highest in Auckland. The booming tourism sector looks to be behind the lift in accommodation services prices and domestic airfares climbed a surprisingly high 7.9% in Q4, but look set to fall in subsequent quarters. Stripping out the impact of government charges and tobacco prices delivered a mild 0.2% q/q print, with annual inflation on this measure (+1.8%) still below the inflation target midpoint."

    "On balance, annual readings from the core CPI measures were marginally softer than the Q3 CPI report, suggesting an element of downside risk to the RBNZ’s Q4 estimate of sectoral inflation (1.5% in Q3). Prices from the CPI excluding food, fuel and energy prices rose 0.3% (+0.9% y/y), quarterly changes in the 5-15% trimmed means were in a -0.2 to -0.4% range (+0.3% to +0.5% y/y), with a +0.2% q/q change in prices from the 50% weighted median (+1.5%y/y). We will find out at 3pm."

    "Some recoil is to be expected from today’s weak Q4 headline print, but low global commodity prices, low wage inflation, further cuts to vehicle relicensing fees, and increasing competitive pressures in some key sectors are expected to keep headline inflation low over 2016.

    Our view is for a period of stability in OCR settings over 2016, but a low inflation backdrop provides the RBNZ with scope to move the OCR lower if the outlook for economic activity deteriorates."
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