NZ: Headline CPI surges 0.5% in Q4 - ANZ

New Zealand’s headline CPI rose 0.5% q/q in Q4, which was above consensus and ANZ’s expectations of a 0.4% lift, but in line with the RBNZ’s latest forecast, explains Miles Workman, Economist at ANZ.

Key Quotes

“This saw annual inflation drop back to 1.1% y/y from 1.6% in Q4 as the strong 2017 Q1 print of 1.0% q/q dropped out. Tradable prices fell 0.1% q/q (-0.4% y/y), while non-tradable prices rose 0.9% q/q (2.3% y/y) as predicted by our ANZ Monthly Inflation Gauge. Relative to our own expectations, the majority of surprise came from slightly stronger petrol prices and a little more non-tradable inflation.”

“As expected, policy-induced price rises were broadly offsetting, with the usual increase in tobacco excise duty adding 0.3%pts and fees‑free territory education pulling the education group down 5.6% q/q and subtracting 0.1%pts (instead of its typical Q1 rise, which would normally add around 0.1%pts).”

“Looking through the noise, the same old story of housing leading the pack continued, with purchase of housing (an implied construction cost excluding land measure) up 0.4% q/q (4.7 y/y) and rents up 0.6% q/q (3.1% y/y).”

“Overall, today’s outturn provided little evidence to suggest that inflationary pressures are broadening outside of housing, but we expected that. Non-tradable inflation ex housing rose 1.2% q/q, which on first blush is a respectable rise, but on an annual basis was up just 1.7% y/y, down from 1.9% in Q4. In seasonally adjusted terms, non‑tradable inflation rose 0.5% q/q, unchanged from Q4 last year. We suspect a broader lift in inflation is likely to remain absent until we see a meaningful lift in wage growth.”

“Core and underlying inflation measures were mixed, with a few rebounding on a q/q basis but generally softening on an annual basis (some moving further outside of the 1½-2% range). In what appears to be a bit of an outlier, the weighted median measure rose 0.2%pts to 2.2% y/y. On the other hand, the trimmed mean measures were down across all levels of the trim in annual terms.”

“We retain a view that domestic inflation will rise and broaden in time. That is largely predicated on our view that the cyclical low in wage inflation is behind us and that courtesy of both skill shortages and government policy changes, wage inflation will continue to lift. If sustained, the recent lift in oil prices (alongside possibly higher petrol duties) will also contribute. However, a deeper broadening in inflation is far from certain. Given we see GDP growth in the next year or so running around trend, there is little to suggest that inflation is about to break out any time soon.”