NZ CPI: Close to target – HSBC

Analysts at HSBC note that New Zealand’s Q3 inflation was slightly stronger than expected, with the headline CPI up 1.9% y-o-y and inflation has now been close to the RBNZ's 'near 2%' target for three consecutive quarters.

Key Quotes

“Facts

- Headline CPI was up 0.5% q-o-q in Q3 (market expected 0.4%, HSBC expected 0.3%), with the annual rate of inflation lifting from 1.7% to 1.9%.

- Tradable inflation was 0.2% q-o-q, with the annual rate lifting from 0.9% to 1.0%. Non-tradable inflation rose 0.7% q-o-q and 2.6% y-o-y, up from 2.4% previously.

- Measures of underlying inflation were mostly slightly stronger. The CPI excluding petrol rose by 1.8% y-o-y, up from 1.7% in the previous quarter, while CPI excluding food and energy lifted from 1.4% y-o-y to 1.5%. Trimmed mean inflation (30% trim) was 2.1% y-o-y, rebounding from 1.9% previously. The RBNZ’s factor model estimates of underlying inflation will be published later today (3pm NZT).”

“Implications

• Inflation continues to bounce around close to target, suggesting that New Zealand's long period of below-target inflation appears to be behind us. However, much of the recent strength has been due to higher prices for food (partly weather-related and most likely temporary) and petrol, although the latter did drop back a little in Q3. Once those volatile items are stripped out of the measures, the lift in inflation is less impressive, but there is still an undeniable gradual pick-up in price pressures. For example, the CPI excluding food and energy stands at 1.5% y-o-y, up from 1.0% y-o-y in mid-2016.
• Non-tradable inflation is also picking up pace, lifting to 2.6% y-o-y, which is the strongest reading since Q2 2014. Much of the cost pressures remain centred around housing. While the rate of inflation in construction costs actually eased a little in Q3 (down from 6.4% y-o-y to 5.4%), this was offset by stronger-than-expected increases in local authority rates and dwelling insurance.”