Consumer prices rose by 0.5% in the December quarter, leaving them up 4.7% over the past year. The December result was in line with our forecast, but below the RBNZ’s expectation.
Consumers Price Index, December quarter 2023
- Quarterly change: +0.5%
- Westpac forecast: +0.5%, RBNZ (Nov MPS): +0.8%
- Market median: +0.5%, range +0.3% to. +0.8%
- Annual change: +4.7%
- Westpac forecast: +4.7%, RBNZ (Nov MPS): +5.0%, Market: +4.7%
Key points
Consumer prices rose by 0.5% in the December quarter. That saw the annual inflation rate dropping to 4.7%, down from 5.6% in the year to September.
Today’s result was in line with our forecast, but it was lower than the RBNZ’s last published forecast which was finalised back in November.
Driving the fall in inflation (and the surprise to the RBNZ’s forecast) has been a fall in import prices. Much of that relates to volatile items like food and airfares. Movements in those sorts of volatile items are not the key focus for the RBNZ when setting monetary policy.
More importantly, domestic inflation pressures remain strong. Non-tradable prices were up 1.1% over the quarter – higher than our own or the RBNZ’s forecasts. On an annual basis, non-tradables inflation is running at a still-strong rate of 5.9%.
Core inflation measures have been dropping back, but remain elevated at rates of over 4%. Non-tradables excluding housing costs is tracking at an annual rate of 6.9%.
Implications
The divergence between the domestic and imported components of inflation helps to illustrate the big concerns that the RBNZ is trying to balance. Inflation is coming down, and faster than the RBNZ has been expecting. That will be important for stabilising inflation expectations and means that the RBNZ will feel more comfortable keeping the OCR on hold for now (recall that the RBNZ’s last policy statement in November signalled some chance a further rate rise).
However, this still leaves us with a picture of ‘lower’ inflation; not low inflation. That’s because domestic inflation is still running at rates that are much higher than the Monetary Policy Committee is comfortable with two years after the hiking cycle began. As a result, rate cuts won’t be on the table in the near term.
