NZ: Prices in the monthly inflation gauge lifted 0.4% m/m in July - ANZ

Cameron Bagrie, Chief Economist at ANZ, notes that the prices in the New Zealand’s monthly inflation gauge lifted 0.4% m/m in July and were up 2.5% y/y while the Underlying Ex-housing Gauge increased 0.1% in the month and is up a meagre 0.7% y/y. 

Key Quotes

“Prices in the Gauge lifted 0.4% m/m in July. That took the annual movement from 1.9% y/y to 2.5% y/y. The headline gauge has been fluctuating within a 1.9-2.5% range for the past year. The Underlying Ex-housing Gauge rose just 0.1% m/m.”

“Quarterly growth in the headline gauge rose from 0.3% to 0.4%, while it lifted from -0.1% to 0.1% for the Underlying Ex-housing Gauge. However, both are small quarterly increases by historical standards.”

“Two groups made notable positive contributions in July. Housing was buoyed by annual local authority rate increases (up 3.6%), a lift in rents (reversing falls in the prior two months) and purchase of housing (construction costs). The miscellaneous group was underpinned by a lift in insurance costs.”

“The headline Gauge lifted 0.4% m/m in seasonally adjusted terms, while the Underlying Ex-housing Gauge was up 0.1% m/m seasonally adjusted. The former is the largest rise since June 2016, while the latter continues to show a dormant inflation picture.”

“Of the 36 groups in the Gauge, 14 rose, one fell and 21 remained unchanged. Vehicle licensing fees contributed to a fall in the other private transport group.”

“The overall inflation picture remains suppressed outside of the usual suspects, namely housing and anything related to housing. That said, the fact that we are now starting to see more groups showing price rises and fewer showing price falls is something that needs to be watched.”

“Low inflation means the OCR is set to stay put at 1.75% for a long time.”