NZ: Q1-17 CPI likely to post 0.9%qoq growth – Deutsche Bank

Phil O'Donaghoe, Senior Economist at Deutsche Bank, explains that DB's forecast for New Zealand’s Q1 CPI is at 0.9%qoq/2.1% and explains that while their pick is much stronger than the RBNZ's forecast as outlined in the February SMP, it is underpinned by volatile items.

Key Quotes

“As such, we do not expect RBNZ's policy guidance to change on the back of this print. Our pick for Q1 CPI is at 0.9%qoq/2.1%yoy.”

“What does this mean for the RBNZ?

Our forecast is much stronger than the 0.3%qoq/1.5% yoy forecast outlined for Q1 in the February MPS. That said, if the CPI prints in line with our pick, we see few implications for the Bank. There are two key reasons:

■ Much of the strength we expect this quarter is underpinned by volatile items. Indeed, the upside risk we see relative to the RBNZ's forecasts can be accounted-for by our picks for food and fuel prices. We would expect some retracement in these groups over coming quarters (although softer food prices may take a little longer to materialise given the severe flooding events in New Zealand's north island over the past week or so).

■ The RBNZ appear to have moved away somewhat from the (near-term) February MPS projections. In the 23 March OCR review, i.e. subsequent to the release of the February MPS, the RBNZ noted that "headline CPI will be variable over the next 12 months due to one-off effects from recent food and import price movements". Nonetheless, inflation is "expected to return to the midpoint of the target band over the medium term".”