20 Jan 2016
NZ: Tradable deflation weighs on overall CPI – ANZ
FXStreet (Delhi) – Mark Smith, Senior Economist at ANZ, notes that the NZ 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.
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).
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).
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.”
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.
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).
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).
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.”