Inflation dragon not slain yet
Imported inflation, sitting at 3%, continues to do most of the leg work in bringing down the headline number. But that’s not really what the RBNZ cares about, says chief economist Jarrod Kerr, Mary Jo Vergara senior economist and Sabrina Delgado economist. “The RBNZ wants to see a significant deceleration in domestic inflation. And with non-tradable inflation remaining elevated at 5.9%, that’ll do little to appease the central bank.”
Although inflation is running well below the RBNZ’s forecasts, it has made it clear it needs to see stable inflation in its rear view mirror, not its projections.
In November, the RBNZ said it wanted to see inflation back at 2% before cutting, but Kerr and his colleagues think it will cut the OCR before then. “That’s the vibe.”
On the domestic inflation front the ripple effects of huge migration is adding upside pressure, especially when it comes to housing, Kerr says. Solid lifts in rents and insurance remain the leading drivers. Rents were up 1.1% over the quarter. Last year, rental inflation crept up to 4.5% - high above the about 3% pre-covid rates.
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