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Writer's pictureRosbel Durán

🇳🇿❗️NEW ZEALAND: ANZ's Q2 CPI PREVIEW

  • The bottom line We expect that CPI inflation rose 0.9% q/q (3.0% y/y) in Q2, touching the top of the RBNZ’s target band of 1-3%, and well-above the May MPS forecast of a 2.6% y/y rise in prices in the year to June. Supply chain disruptions are showing no signs of easing, the labour market is tightening, and firms are starting to pass higher costs onto consumers (with littlepushback). That’s a pretty potent mix for strong inflation over 2021 (and beyond, without imminent OCR hikes).


  • Turning to the details Of the 0.9% q/q rise in headline CPI in the June quarter:

  • Petrol and other fuel prices are expected to contribute 0.2ppts to headline, with weekly petrol data suggesting a 4.4% rise in fuel prices over the quarter.

  • Housing and household utilities are anticipated to add 0.4ppts. Extremely strong house price inflation and surging construction sector pricing intentions in the ANZ Business Outlook suggest that there’s a lot of inflation coming from the hot housing market. And this may last for some time – even though we’re consenting record levels of new dwellings, it could still take years to clear the housing shortage (even if the border remains closed).

  •  Strong food price inflation is expected to add 0.3ppts to headline CPI inflation. With global commodity prices rising sharply in recent months, food prices have not escaped these increases. Seasonal rises in vegetable prices, the April minimum wage rise, and the ongoing labour shortage have also likely put pressure on food prices.


  • Policy implications

  • This will be a key data point for the RBNZ (and economists trying to forecast when interest rates will rise!). We’ve seen some incredibly encouraging data prints in recent months, with GDP up a stonking 1.6% q/q in Q1, job vacancies smashing records, and business surveys (ANZBO and QSBO) all pointing to an economy that’s red hot. But, this will be the first print where we see how all these pressures are starting to feed through into prices.

  • We’re expecting to see the highest inflation since the GFC (excluding the GST hike). If inflation does come in as expected, then the case for a November hike (if not earlier) will be looking very strong. Of course, the drivers of inflation matter – the RBNZ isn’t going to hike interest rates just because oil prices went up a bunch. But as we discuss above, when we cut through thenoise of higher oil prices, minimum wage hikes, base effects, and persistent supply disruptions, we are seeing signs of sustained underlying inflation pressure. The labour market is tight, businesses are passing on higher costs, and consumers are expecting strong price increases – that’s all a recipe for sustained inflation pressure




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