NZ December quarter inflation: low now, higher later - TDS

New Zealand’s Dec quarter CPI rose by +0.1%/qtr, below TD at +0.3% and well below mkt at +0.4/+0.5%, and below that expected by the RBNZ (+0.3%, before the new CPI weights were released), notes the research team at TDS.

Key Quotes

“Annual inflation dipped to 1.6%/yr, remaining below the RBNZ’s 2% mid-point target.”

“We await the RBNZ PTA that incorporates the expanded mandate, i.e. what the definition of “maximum employment” is as well as what the policy decision process is. However, this soft print does not detract from our view that at least two hikes are needed by the RBNZ later this year as capacity constraints combined with Labour’s outsized fiscal package point to a substantial pickup in inflation in due course.”

“The OIS strip has flattened considerably to a 64% chance of a hike by year end (before the report it was fully priced). Our risk case is flat at 1.75% in H1 and 2-3 hikes needed in H2, but we are not there yet as we wait for the new PTA and policy process.”

“We look for AUDNZD to remain elevated and potentially test 1.10 in the near term, but tactically test closer to 1.05 when the RBNZ switches to an outright tightening bias, but is likely a theme for H2.”