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RBNZ Sectoral Core Inflation jumps to 3.2 percent yoy in Q4

Fuseworks Media
Fuseworks Media

Key points:

Q4 Inflation readings from the RBNZ core inflation measures rose to their highest level since 2008.

Annual inflation from the RBNZ sectoral inflation model rose to 3.2% in Q4, the highest level since early 2008 from an upwardly revised 3.0% in Q3. Inflation from the RBNZ factor model rose to 3.3% yoy (2.8% yoy prior).

The RBNZ will be very wary of the lift in core inflation above the 1-3% inflation target range from these measures.

Annual core non-tradable inflation from the sectoral inflation model ticked up to 3.8% yoy, the highest since 2008. This confirms elevated rates of in core domestically generated inflation.

Much of the 6.9% annual climb in Q4 CPI tradable prices (+6.9% yoy) was viewed to be transitory, with the RBNZ estimate of annual core inflation tradable inflation up slightly to 2.1% yoy from an upwardly revised 1.3% yoy in Q3. We see more of the risk of price increases from these pockets not abating as quickly as the RBNZ would like.

We expect annual headline CPI inflation to move above 6% by early 2022 due to a myriad of supply chain, commodity, capacity and demand side influences. Annual inflation is unlikely to fall below 3% until 2023 at the earliest.

There is the risk that high CPI inflation outcomes persist well into 2023 as pressures on capacity broaden and tighten further. Persistently high inflation imposed large costs to the economy and would make the RBNZ’s job tougher.

The RBNZ clearly has more work to do, with today’s elevated Q4 inflation prints raising the odds of a faster pace of OCR hikes and a higher OCR endpoint than the RBNZ’s ‘considered steps’ mantra.

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