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NZD: Food and housing propelled NZ CPI higher - TDS

FXStreet (Delhi) – Annette Beacher, Chief Asia-Pac Macro Strategist at TD Securities, notes that the New Zealand Sep quarter CPI rose by +0.3%/qtr and +0.4%/yr, higher than the market expectations of +0.2%, supported by the food and housing sector.

Key Quotes

“NZD TWI at 72.8 is tracking well above the RBNZ target of 67.9 by year end. In the quarter: tradable prices rose by +0.7% (vegetables, holidays, furniture, -1.2%/yr) and domestic prices were flat (1.5%/yr) but lower ACC levies were at play here, with “ex-government charges domestic inflation” much higher at +0.5%/yr due to housing-related costs. So in fact, inflation that the RBNZ can control was much stickier than expected.”

“Looking ahead: October petrol prices to date are -4.5% lower than Q3, hinting at another drag from the Transport sector. Dec qtr seasonal patterns tend to be on the downside, especially Food and Tobacco/Alcohol (together accounting for onequarter of the CPI). Overall our flash forecast for Dec qtr is -0.1% or +0.5%/yr, with the key mid-point 2% grudgingly reached by early 2017 on our calculations.”

“For the RBNZ: Governor Wheeler surprised many with his neutral tone earlier this week, signalling that he preferred to keep his OCR powder dry for whatever lies ahead. OIS is less than 20% priced for a cut for the OCR Review on October 29 and priced for -25bp by March 2016. The RBNZ in September targeted 2% inflation by mid-2016, and we suspect that this will be pushed back towards end-2016 or into 2017, paving the way for a 25bp cut on December 10, to 2.5%.”

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