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CPI bang on RBNZ forecast

18 April 2016
New Zealand
The March 2016 quarter CPI came in a touch higher than market but bang on Reserve Bank of New Zealand (RBNZ) expectations.  Headline inflation rose 0.2% for an annual rate of 0.4%.  The annual rate is up from 0.1% in the year to December 2015.

The major contributors were broadly as expected with falling airfares and petrol prices keeping overall inflation subdued over the quarter while on the other side of the equation we are finally starting to see some flow through into prices from prior falls in the exchange rate.  There’s only so much margin pressure retailers can take!
While the overall result was in line with RBNZ expectations, the mix was a bit different in that tradeables inflation was a touch weaker than expected while non-tradeables was a bit stronger.  Non-tradeables inflation (i.e. domestically generated inflationary pressures) is more important for the setting of monetary policy.
That said this result shouldn’t derail the RBNZ from delivering its next already-flagged 0.25% interest rate cut.  The question is mostly about timing.  Slightly stronger domestic inflation along with recent data showing some renewed strength in the housing market may see the Bank choose to muse beyond next week’s OCR review and wait until they have rerun all the numbers for the June Monetary Policy Statement.  More on that soon.
This blog post has been prepared to provide general information and does not constitute 'financial advice' for the purposes of the Financial Advisors Act 2008 (Act). An individual investor should, before making any investment decisions, consider the information available in the relevant Product Disclosure Statement and seek professional advice. While every care has been taken in the preparation of this document, AMP Capital Investors (New Zealand) Limited and the AMP Group (together, 'AMP') make no guarantee that the information supplied is accurate, complete or timely and do not make any warranties or representations in respect of results gained from its use. The information is not intended to infer that current or past returns are indicative of future returns. The views expressed are those of the author and do not necessarily reflect those of AMP. These views are subject to change depending on market conditions and other factors.

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