The research team at ANZ explains that while the lift in NZ’s headline inflation can be discounted to some degree, the latest CPI figures still reinforce that core inflation is grinding higher, albeit gradually and not broadly enough to shift the RBNZ’s stance at this stage.
“Slow rises in core inflation are something we expect to continue amidst a lot of economic uncertainty (the impact of a sizeable tightening in financial conditions being a major one; the global situation is another).”
“The RBNZ will welcome headline inflation back at the target midpoint. It certainly feels like it has been a while in the making.”
“But we doubt the figures will spur the RBNZ to dramatically shift its stance just yet. Yes, the figures were well above the RBNZ’s February forecasts, and some measures of core inflation (weighted median and trimmed mean especially) are now back over 2%. However, the signals were far from unanimous. The RBNZ’s own Sectoral Factor Model was unchanged at 1.5% y/y (reinforcing that a lot of the price rises in Q1 were due to idiosyncratic factors), and there remains limited evidence of domestic inflation pressures broadening beyond housing (annual non-tradable inflation excluding housing was stable at 1.9%). Not only this, but there is still only tentative evidence at best that price pressures are spilling into the labour market (wages). And we’ve had two false tightening starts before, only to see inflation fade.”
“Our forecasts depict headline inflation continuing to bob around the 2% level. However, there are offsetting moves at the components level, with domestic inflation expected to continue to slowly grind higher, while tradable inflation should ease from current levels.”