NZ CPI first thoughts

Analysts at Westpac's first thoughts on the NZ CPI data that arrived as follows:

NZ Consumer Price Index, September quarter 2017
Quarterly change: 0.5% (Westpac: 0.5%, market: 0.4%, RBNZ: 0.2%)
Annual change: 1.9% (Westpac: 1.9%, market: 1.8%, RBNZ: 1.6%)

Key Quotes:

Consumer prices rose 0.5% in the September quarter, in line with our forecast and slightly above the market median. The result was stronger than the 0.2% rise that the Reserve Bank forecast in its August Monetary Policy Statement. However, most of the difference was on the tradables side, which includes relatively volatile items such as food and fuel prices.

For now, inflation sits comfortably in line with the Reserve Bank’s target. However, there is little that suggests a risk of inflation breaking higher, particularly with the New Zealand economy seemingly entering a slower growth phase.

Tradables prices rose 0.2% for the quarter. Food prices rose by 1.1%, with vegetable prices edging back from a previous weather-related spike, but grocery prices picking up. Petrol prices rose strongly during the quarter, but they were still down by 1.7% on average. The disinflationary impact of the strong New Zealand dollar is waning, although the effects on import prices were mixed. Car prices were higher than we expected, but household goods prices were lower than forecast.

Non-tradables prices rose 0.7% for the quarter, a little stronger than we and the RBNZ expected. Looking at the details suggests that the surprise wasn’t widespread, with an element of government charges driving the move higher. Increases in alcohol excise duty, and the fire service levy on insurance premiums, had a larger effect on prices than we had assumed.

The annual inflation rate rose from 1.7% to 1.9%. A range of core inflation measures all told a similar story, with the annual rate either holding steady or ticking slightly higher, and sitting within a range of 1.7% to 2.0%.

Market reaction:

The NZD/USD rose 1/3 of a cent on the result. There was no reaction on interest rate markets.

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