RBNZ's next move will be a rate cut, bank says
Kiwibank said the latest inflation print was “great news” overall, with the world war on inflation “being won, albeit slowly.”
The latest annual inflation data from Stats NZ revealed a 6% increase in the consumers price index in the 12 months to June, in line with Kiwibank’s 6% forecast and slightly higher than the 5.9% consensus.
In Kiwibank’s latest publication, Sabrina Delgado, economist, Mary Jo Vergara, senior economist, and Jarrod Kerr, chief economist, said that while tradable (imported) inflation was on track, down to 5.2% from 6.4%, and a peak of 8.7%, domestically generated inflation remained mixed.
“When we slice and dice the data… we see some markedly mixed moves,” Delgado, Vergara, and Kerr (pictured above, from left to right) said.
“Prices have risen pretty much across the board. The percentage of goods in the basket recording increases, rose. Food and housing prices recorded the largest gains. And they hurt the most households.
“Construction-related costs eased to 7.8% yoy (still hot) down from 11% (near boiling). Construction costs will continue to decline, sharply, as the housing market cools.
“Transport-related prices helped, falling 2% over the quarter. International airfares were down a massive 12% on the quarter. And petrol prices were down, before the excise tax was put back on in full from July 1st. We’ll see a bit of a bump in petrol prices in the current, 3rd quarter.”
Non-tradables inflation, which the Reserve Bank has influence over, fell from the peak of 6.8% to 6.6%, but was still far from the RBNZ target of 1% to 3%.
Core measures of inflation, which strip out volatile stuff, recorded a positive shift lower, from 6.5%, down to 6.1%, although, again, it was a “long way back beneath 3%.”
Kiwibank said RBNZ “will take comfort” in the latest inflation report, with “the key indicator moving in the right direction” and “most of the other indicators have come in softer than the RBNZ had forecast.”
“There’s no need to tighten further,” the economists said. “We expect the RBNZ to sit tight for the remainder of the year. Monetary policy operates with a lag, and we’re yet to see the full impact of past actions on today’s economy.”
The NZ-owned bank is expecting the central bank to start cutting rates in February.
“By then, we are likely to be in the middle of a mild recession. A recession engineered by the RBNZ, to tame inflation,” Delgado, Vergara, and Kerr said.
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