New Zealand: March 2016 CPI review – ANZ

By FXStreet Mark Smith, Senior Economist, at ANZ explained that they expect a 0.1% increase in overall consumer prices in the March quarter, slightly below the RBNZ’s March MPS pick of 0.2%, with annual CPI inflation rising to 0.4%, the seventh consecutive quarter below 1%.

Key Quotes:

“Offsetting movements are expected for tradable (-0.8% q/q, -1.0% y/y – a 17-year low) and non-tradable prices (+0.8% q/q, +1.4% y/y), with falls in fuel prices broadly offset by higher prices for tobacco and education, the latter both being seasonal. Housing is expected to feature on the upside, but outside of that we expect a subdued inflation picture.

Core inflation measures produced by Statistics New Zealand are expected to come in a ½% to 1½% annual range.

A low headline inflation starting point and its larger-than-previously flagged impact on price and wage setting behaviour (RBNZ research) is on the face of it another tick in the box for a lower OCR, and sooner rather than later.

We concur that the OCR is headed lower (the recent push higher in the NZD being one of many reasons) but are still wary of the trade-offs a lower OCR will bring: Household leveraging behaviour and sharply rising house prices are …read more

Source:: FX Street