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New Zealand’s headline consumer price inflation is expected to have risen 0.1 percent q/q in the second quarter of this year. This would bring annual inflation to 1.2 percent – a 0.1 percentage point lift from Q1, but well below the Reserve Bank of New Zealand’s (RBNZ) May MPS forecast of 1.5 percent y/y, according to the latest report from ANZ Research.
The small quarterly rise reflects a mix of higher fuel prices plus some of the usual ups and downs in other categories. A 3.5 percent q/q rise in petrol prices is expected to make the largest class-level contribution to quarterly headline inflation followed by a seasonal rebound in international airfares, with the latter exacerbated by higher fuel costs.
A seasonal rise in fruit and vegetable prices will also contribute. On the other hand, a seasonal decline in domestic airfares is expected to provide a drag, but this should be limited by higher-fuel-cost-induced price rises. Accommodation services prices are also expected to make their usual Q2 journey south reflecting the seasonal lull in tourism.
And while the labour market is close to full employment, recent labour market indicators suggest further tightening may be limited. Just how much wage growth accelerates beyond the impact of higher minimum wages and government wage negotiations is a key uncertainty. On the other hand, a lift in inflation expectations, perhaps related to minimum wage increases and higher tradables inflation, could lead to more sustained inflationary pressures than currently expected.
"We expect the RBNZ will stay cautious, given the inflation pulse remains subdued, the growth outlook has softened, and downside risks have increased. In fact, if downside risks were to materialise, an OCR cut could eventuate quite rapidly, although we are not there yet. The RBNZ is likely to maintain a neutral stance until there’s more certainty that inflation is increasing in a broad based, sustainable way," the report added.
