New Zealand: Inflation moderates in Q2
July 19, 2017
Consumer prices dropped from a 1.0% increase in Q1 to a flat reading in Q2, coming in below market expectations of a 0.2% increase. According to Statistics New Zealand, the reading reflected higher prices for food and for housing and households, which offset lower prices for transport. The strong NZD continues to suppress inflationary pressures in the country and to undermine the Central Bank’s efforts to prop up inflation in the country.
In Q2, inflation edged down from Q1’s over five-year high of 2.2% to 1.7%. Inflation is now slightly below the middle of the Reserve Bank of New Zealand’s inflation target range of 1.0%–3.0%, and the larger-than-expected moderation surprised analysts who expected a stronger 1.9% print.
The quarterly print reinforces the view that no rate hikes are on the table for the foreseeable future. While inflation has crept up from the lows recorded in the past two years, it remains volatile and constrained from making further gains. As the economy is not in danger of overheating as shown by the latest national accounts figures, the Reserve Bank still has some leeway to support inflation through accommodative monetary policy. As a result, the first rate hike, which by financial markets had been expecting for mid-2018, is likely to be postponed further until 2019.