“That would be the lowest annual inflation rate since 2021,” said Westpac senior economist Michael Gordon. “However, it is still well above the RBNZ’s 2 per cent target midpoint.”
The forecast incorporated Stats NZ’s monthly update on selected prices for March (covering around 45 per cent) of the CPI basket, he said.
“The March data did present some surprises, such as softer food prices, but firm prices for holiday accommodation. But on balance, this data did not change our forecasts for the quarter as a whole.”
Food prices fell in March, compared to February, led by a steep fall in the price of fruit and vegetables.
On an annual basis a record 13.8 per cent fall for fruit and vegetables helped keep the inflation figure for all food at 0.7 per cent.
Pushing against that was a range of domestic (non-tradeable) costs, he said.
“The March quarter result will be boosted by the annual increase in the tobacco excise tax, as well as increases in housing rents. In addition to those factors, businesses have reported ongoing pressure on operating costs. We also expect further sizeable increases in the cost of services like insurance.”
ANZ economists are picking a rise of just 0.6 per cent for the quarter (4 per cent year on year).
They are expecting non-tradable (domestically driven) inflation to land at 1.3 per cent for the quarter and 5.5 per cent for the year.
“Non-tradable inflation has continually printed stronger than the RBNZ has anticipated since the last hike in May last year,” said ANZ economist Henry Russell.
“However, weakness in activity and the emergence of spare capacity across the economy, particularly in the labour market, should be sufficient for the RBNZ to tolerate near-term strength, given our assessment of a pipeline of domestic disinflation ahead.”
ANZ expects tradeable (largely imported) inflation of -0.4 per cent for the quarter (1.9 per cent year on year).
That was well above the RBNZ’s February forecast of -0.8 per cent for the quarter, but still weak as the post-Covid supply-side normalisation continued, Russell said.
“However, with renewed inflation risks from rising commodity prices and shipping disruption, disinflation progress must transition to being led by domestic and services inflation.”
So when could interest rates fall?
“All up, disinflation progress is occurring more slowly than the RBNZ anticipated, but progress is being made,” Russell said.
However, given a potential re-emergence of global inflation pressures the RBNZ was likely to remain cautious amidst the uncertainty.
“Until the RBNZ has seen concrete evidence that domestic inflation pressures are beaten it likely won’t take any chances by easing policy settings too proactively, nor by even suggesting that it might,” he said.
Westpac’s Gordon noted that the RBNZ would be braced for a larger rise than was assumed in its February policy statement, but the source and extent of those surprises would be important for the stance of policy.
In its Monetary Policy Review last week the RBNZ said it was “confident that maintaining the OCR at a restrictive level for a sustained period will return consumer price inflation to within the 1 to 3 per cent target range this calendar year”.
But it stuck with its previous view that the first rate cut won’t happen until 2025.
Markets have priced in a high chance of a cut by August although most economists don’t see that happening until November at the earliest.
Liam Dann is business editor-at-large for the New Zealand Herald. He is a senior writer and columnist, and also presents and produces videos and podcasts. He joined the Herald in 2003.
If you have a burning question about the quirks or intricacies of economics, send it to liam.dann@nzherald.co.nz ... or leave a message in the comments section. He’ll try to answer in Inside Economics, a new column published every Wednesday.
