Higher June Quarter Headline Inflation Masks Softer Underlying Pressure Consistent with Excess Capacity, Weak Labor Market, BofA Securities Says

MT Newswires Live07-22

Elevated headline inflation masked softer underlying pressure consistent with excess capacity and a weak labor market in New Zealand's June quarter consumer price index (CPI) data, BofA Securities said in a report on Tuesday.

New Zealand's annual consumer inflation increased by 4.1% in the June quarter, up from a 3.1% increase in the 12 months to the March quarter.

Excluding petrol and diesel, the CPI is estimated to have increased by 0.5% on a quarterly basis and 2.8% on an annual basis, suggesting modest price spillovers from higher energy costs. Household utilities continue to drive headline inflation higher, with household energy up 4.1% quarter-over-quarter and contributing 14 basis points.

Most measures of core inflation eased, but remain in the upper half of the central bank's band. Rental inflation rose 0.1% quarter-over-quarter and 0.5% year-over-year, which was very soft amid weak housing conditions.

The firm forecast a 25 basis point rate hike in September, a pause in October to assess inflation spillovers and policies, before another 25 basis point rate hike in December takes the official cash rate to 3%.

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