NZ CPI: Adds to RBNZ Pause Next Week - TDS
Research Team at TDS, notes that the NZ March qtr CPI rose by +0.2%/qtr
and +0.4%/yr, on par with the RBNZ’s March Monetary Policy Statement
(MPS) expectations.
Key Quotes
“The NZD
initially dipped on a Bloomberg technical glitch (claiming the annual
rate was +0.1%) then rebounded swiftly on the correct figures and the
fact that domestic inflation jumped a decent +1% in the quarter.
A
few hours later, the RBNZ published its ‘sectoral factor model’
estimate for Q1. After rising from 1.3% to 1.6%/yr last year, the Bank’s
preferred underlying measure (we are just not sure how ‘preferred’)
remained unchanged at 1.6%/yr, so no strong signal there either.
RBNZ on April 28 ==> hold now, cut later
Looking
ahead to Q2 CPI, petrol prices in April to date are +2.7% higher than
Q1, while food (seasonal) and housing (cyclical) are expected to edge
higher, and so our (very) early tracking is for headline CPI to rise by
+0.5%/qtr, for an annual rate of +0.5%/yr. This is a little higher than
the RBNZ MPS projection of +0.3%/yr, but this is meaningless on a
longer-term view, with the RBNZ and TD targeting 2% by early-mid 2018.
More
importantly for policy, the RBNZ will be monitoring inflation
expectations: will this “bounce” in headline inflation prompt a
commensurate pickup? And how long can we expect the RBNZ to wait before
delivering the “baked in” 25bp cut to 2%? TD and the market say June,
but there are risks of delay in our view given June is full of event
risk (Fed, China, the EU referendum).
Last month the RBNZ
delivered a ‘surprise’ 25bp cut to 2.25%, concluded with “Further policy
easing may be required to ensure that future average inflation settles
near the middle of the target range” and the bank bill profile (forward
guidance) had baked in another -25bp cut to 2%. We expect a repeat of
this easing bias.
For next week, while the cash rate is likely
to be left at 2.25%, such fresh, sincere jawboning is required as its
absence will keep the TWI elevated compared with the Bank’s March
projections.
Next week’s April OCR Review is otherwise likely to
be brief, noting that the economy has “unfolded as expected”, and there
is no press conference. After the highly publicized leak in the March
MPS journalist lockup, there are no more lockups for anyone.”
