Inflation falling, but still above forecast
WELLINGTON: Annual inflation looks set to cool further, but the numbers are still set to come in hotter than the central bank’s expectations.
The financial market consensus is for the consumer price index to have risen 0.7% in the first quarter, bringing the annual rate down to 4.1% from 4.7%, with forecasts ranging for an annual rate of between 3.9% and 4.4%.
The forecasts were all above the Reserve Bank’s (RBNZ) February expectation of 3.8%.
ANZ said sticky domestic prices — the nontradeable inflation of rates, rents and insurance — would likely remain strong, while imported inflation would also be stronger than expectations.
ANZ economist Henry Russell said underlying inflation pressures appeared to be persistent.
‘‘We expect nontradeable inflation rose 1.3% quarteronquarter [5.5% yearonyear], above the RBNZ’s forecast of 1.1% quarteronquarter [5.3% yearonyear].’’
Mr Russell said domesticdriven inflation had continually come in stronger than the RBNZ had expected since the central bank halted its rate hikes in May.
‘‘However, weakness in activity and the emergence of spare capacity across the economy, particularly in the labour market, should be sufficient for the RBNZ to tolerate nearterm strength, given our assessment of a pipeline of domestic disinflation ahead,’’ he said.
ANZ expected tradeable inflation — or imported inflation — to be ‘‘well above the RBNZ’s forecast’’ of 0.8% quarterly and 1.5% annual growth.
‘‘[It is] still weak as the postCovid supplyside normalisation continues. However, with renewed inflation risks from rising commodity prices and shipping disruption, disinflation progress must transition to being led by domestic and services inflation,’’ Mr Russell said.
Kiwibank senior economist Mary Jo Vergara said inflation would likely return to within the RBNZ’s 1%3% target by the September quarter. She said domestic inflation had peaked but continued to fall at a ‘‘frustratingly slow pace’’.
‘‘And the ripple effects of migration adds upside pressure, especially when it comes to housing. The surge in migration continues to drive rents, which are estimated to have jumped around 1.1% over the quarter.
‘‘Rental inflation continues to creep higher . . . A continued slowdown in home construction costs will likely provide some offset. Cost pressures remain strong, but are easing,’’ Ms Vergara said.
The RBNZ said in its latest monetary review inflation remained stubborn in some sectors, but it was confident it would be back in the 1%3% target band by the end of the year. — RNZ