Westpac and Kiwibank have put their annual inflation forecast expectations 20 basis points ahead of ANZ’s prediction before the Consumer Price Index (CPI) for the March quarter comes out on Wednesday, April 17.
The three banks' economists released CPI previews ahead of Statistic New Zealand reporting the figures, with Westpac and Kiwibank casting 4.2% as their expected annual inflation rate, with ANZ coming in lower at 4%.
The Reserve Bank (RBNZ), which earlier this week held the Official Cash Rate (OCR) at 5.50% for a sixth consecutive time, expects annual inflation to decrease to 3.8%, still ahead of its 1% to 3% target.
Annual CPI inflation fell from 5.6% to 4.7% in the December quarter, the lowest level of inflation the country has reached since June 2021.
ANZ economists Henry Russell and Miles Workman said they expect the CPI to rise 0.6% in the March quarter – which will bring annual inflation to 4% – and for the data to show “stronger near-term inflation pressures” than previously anticipated by the RBNZ in its February Monetary Policy Statement (MPS).
The RBNZ has forecast a 0.4% CPI increase in the March quarter, and has predicted that headline inflation will drop below 3% in the September quarter of this year.
“Broadly, the divergence across the inflation basket remains, with global (tradable) disinflation still washing through, while domestic-driven (non-tradable) inflation for now remains robust even as the domestic economy itself does not,” Russell and Workman said.
The pair expect non-tradable or domestically driven inflation to rise 1.3% from the December quarter and 5.5% year-on-year. This is above the RBNZ’s forecast of 1.1% for the quarter and 5.3% for the year.
When it comes to tradable or largely imported inflation, they anticipate a fall of 0.4% in the quarter, which would bring tradable inflation up 1.9% for the year.
In its February forecast, the RBNZ expected tradable inflation to be up 0.8% in the March quarter and 1.5% year-on-year.
“We don’t expect the first quarter CPI report to materially shift the dial on monetary policy expectations, with the details likely to have something for both the hawks and the doves. For the doves, falling core inflation will offset the near-term noise, alongside weakening domestic activity and a cooling labour market that’s still flowing through to softer domestic inflation,” Russell and Workman said.
“For the hawks, the potential reemergence of global inflation pressures highlights that a lot of the fall in CPI inflation thus far has been due to factors beyond the RBNZ’s control, as well as the risk that inflation does not return to the target band this year. The outlook remains highly uncertain, and we think the RBNZ’s strategy will be to continue to ‘watch, worry and wait’.”
Westpac senior economist Satish Ranchhod said the bank is expecting the CPI to rise by 0.8% in the March quarter – 0.2% higher than ANZ thinks it’ll be.
This 0.8% CPI uptick would see annual inflation drop back to 4.2%, falling from the December quarter’s 4.7%.
“We expect the March quarter inflation report will show that inflation has continued to ease, but not as quickly as the Reserve Bank had assumed,” Ranchhold said.
“While inflation pressures are easing, that decline is occurring gradually, with measures of core inflation lingering at levels above the RBNZ’s target range. Notably, we’re still seeing strong price increases in parts of the domestic economy.”
Ranchhod said Westpac expects non-tradable inflation to be up 1.4% over the quarter and up 5.6% over the past year, with tradable inflation down 0.1% for the quarter, bringing it to 2.2% for the year.
“Much of that is due to falls in food and fuel prices,” he said. “However, tradables inflation more generally has also taken a sizeable step down over the past year as earlier disruptions to supply chains have eased and as New Zealand households have wound back their spending in many areas (including spending on imported durable items)."
Kiwibank, like Westpac, expects the headline inflation rate to fall from 4.7% to 4.2% in the March quarter.
Kiwibank senior economist Mary Jo Vergara said the focus around CPI next week will be on the domestic or non-tradable inflation.
“That’s the RBNZ’s primary concern. It’s domestic price pressures that they can influence. And a return to the RBNZ’s 2% target midpoint hinges on a moderation in domestic inflation,” Vergara said.
“We expect an encouraging fall to 5.4% on an annual basis, down from 5.9% and further away from the 6.8% peak.”
When it comes to imported or tradable inflation, Kiwibank has priced it coming in at 2.2% next week which is also Westpac’s expectation.
“As has been the recent trend, a rapid deceleration in imported (tradable) inflation continues to carry headline inflation lower,” Vergara said.
Statistics NZ's latest Selected Price Indexes (SPI), which incorporate about 45% of the CPI and gives preview information about inflation, came out on Friday.
The SPI showed food prices had increased by just 0.7% in the 12 months to March, the smallest increase Statistics NZ has reported since April 2021.
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