New Zealand inflation comes in hot and now the Kiwi dollar is soaring

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  • New Zealand inflationary pressures surged in the September quarter, recording the largest percentage gain since early 2017.
  • Fuel prices surged by 5.5% over the quarter, and 19% over the year.
  • Headline and underlying inflationary pressures continue to move back towards the midpoint of the RBNZ’s 1-3% annual target. The bank will release its updated inflation estimate later today.

New Zealand inflationary pressures surged in the September quarter, recording the largest percentage gain since early 2017.

According to Statistics New Zealand (StatsNZ), headline consumer price inflation (CPI) jumped by 0.9% in the three months to September, the largest quarterly increase since the first three months of 2017.

The increase was hotter than the 0.7% gain expected by financial markets, and more than double the 0.4% gain forecast by the Reserve Bank of New Zealand (RBNZ).

The large quarterly increase left CPI up 1.9% from a year earlier, the fastest since the September quarter of 2017.

The RBNZ has an inflation target of 1-3%.

StatsNZ

StatsNZ said tradable inflation — that influenced by offshore factors — rose at the fastest pace since the middle of 2015, primarily reflecting the impact of a weaker New Zealand dollar and soaring fuel prices.

“On a quarterly basis, prices for tradables rose 0.9%, the highest quarterly increase since the June 2015 quarter,” it said. “Excluding vehicle fuels, the quarterly increase was only 0.3%.”

Fuel prices surged 5.5% during the quarter, and 19% over the year.

Even with the impact of soaring fuel prices, tradable prices only grew by 0.8% from a year earlier.

StatsNZ

Non-tradable prices — influenced by domestic factors — grew by a faster 2.6% over the year with higher prices for cigarettes and tobacco, construction, rents and local authority rates the largest contributor to the increase, according to StatsNZ.

Those price gains were partially offset by lower prices for education services following the introduction of one-year free provider-based tertiary education or industry training introduced in March.

While the headline increase in inflation was driven largely by one-of factors, the trimmed-mean measures released by StatsNZ that exclude extreme price movements grew by 1.8% to 1.9% from a year earlier, moving back towards the midpoint of the RBNZ’s inflation target.

In late September, the RBNZ noted that “higher fuel prices are likely to boost inflation in the near term”, adding that it would “look through this volatility as appropriate”.

It also acknowledged that the next move in its official interest rate settings could be “up or down”.

The RBNZ will release its latest underlying inflation estimate (Sectoral factor model) at 3pm in Wellington. It previously grew by 1.7% in the year to June, the highest level since 2011. It also resulted in an unusually large reaction in the New Zealand dollar.

While he doesn’t think today’s report will be enough to see the RBNZ adopt a more hawkish stance on the outlook for policy settings, Marcel Thieliant, Senior Australia and New Zealand Economist at Capital Economics, says nor does it justify the need to loosen policy again.

“The RBNZ will probably look through the jump in energy prices and conclude that underlying inflation isn’t strong enough yet to meet its inflation target of 1-3%. So there’s no need to rush to raise interest rates,” he said.

“Equally, though, the RBNZ doesn’t need to cut rate with headline inflation close to the midpoint of its 1-3% target and underlying inflation trending higher.”

Despite the pledge to look through the fuel-led spike in inflation, the New Zealand dollar has jumped following the release of the report, lifting to as high as .6595 against the US dollar.

The NZD/USD currently trades at .6850.

Investing.comNZDUSD Hourly Chart

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