Fuseworks Media

Monthly CPI highlights some upside to our Q4 CPI pick – ASB

– Our add-up of the monthly CPI series suggests that inflationary pressures for a good chunk of the economy, are on a cooling trend.

– Nonetheless, sharp jumps in international airfares in December will likely add to our earlier Q4 CPI estimates. We will release our Q4 CPI preview tomorrow.

– Inflationary trends are declining, but there is still a long way to go until the RBNZ can declare mission accomplished. We expect the RBNZ to keep OCR settings tight to ensure circa 2% inflation is delivered.


The monthly CPI data cover only about 45% of the CPI regimen, and includes typically more volatile components, and is not intended to be used as a monthly CPI or a Monthly CPI indicator.

We will be releasing our Q4 NZ CPI preview later this week. After incorporating the monthly data, our Q4 estimates are now sitting at 0.5% qoq (4.7% yoy), some 0.2 percentage points higher that beforehand, but still below the 0.8% qoq, 5.0% yoy RBNZ pick. We will release out CPI preview tomorrow.

Inflationary trends are declining, but there is still a long way to go. The monthly CPI data are underweight for stickier services prices that have more of an impact on core inflation and more persistent inflation trends. The RBNZ will want to make sure that inflation is on track to settle at around 2%. If readings for core and non-tradable inflation remain elevated, OCR cuts in the first half of 2024 are extremely unlikely, and we can envisage rate cuts could be delayed until 2025.

Food Prices (18.8% of CI weight)

Food prices fell 0.1% in December (flat on a seasonally adjusted basis, with food prices down 1.1% in Q4, the largest quarterly fall in 3 years. Annual food price inflation fell to 4.8%, its lowest in two years.

In looking at the details:

  • Fruit and vegetable prices rose 2.5% but were down 6.3% for the quarter (+1.5% yoy).
  • Grocery food prices were down 0.3%, with prices down 0.8% in Q4, the largest quarterly fall since Q3 2020. Annual grocery food price inflation fell to 5.4%, the lowest since early 2022. It is our view that consumer resistance to paying higher prices and promotions associated with supermarket rebranding should continue to cap grocery food prices in the coming months.
  • Meat, poultry, and fish prices fell 1.0% (down -1.1% qoq) with prices up 2.3% yoy.
  • Non-alcoholic beverage prices fell 2% to be flat over Q4l.
  • Price rises for restaurant meals and ready-to-eat food continued to increase (0.3% mom, 0.8% qoq, 7.1% yoy) likely linked to rising wage costs.

We expect annual food price inflation to fall below 3% by mid-2024. This will be a relief to beleaguered consumers.

Other Monthly Prices (26.3% of CI weight)

Dwelling rents are the largest component in the CPI (weight 10.3%) and in non-tradable CPI prices (17%). Rents for the stock measure rose 0.5% mom, with the quarterly rate steady at 1.0%. Annual dwelling rental inflation from the stock component ticked up to 4.4%. Exceptionally strong net immigration is expected to sustain high inflation in this component over 2024.

Tobacco and alcohol prices (7.1%) fell 0.4% in December (+1.3% in Q4). Annual inflation from this component held at around 8% with the indexation of excise to past CPI movements likely keeping inflation rates up.

Prices for airfares (2.7%). The 42% jump in international airfares pushed up overall airfares 31% in December. Month to month movements in this component are volatile, with airfares down 0.3% in Q4. We expect sizeable falls in airfares over 2024 as the COVID-19 premium unwinds.

Accommodation (2.9%). Accommodation prices fell 0.4% mom (+0.7% qoq). Falling costs for overseas accommodation packages offset the jump in domestic packages. These monthly moves look seasonal. Annual inflation from this component (down to 5.0% yoy) is slowing as the tourism sector begins to normalize post the immediate post-COVID rush.

Petrol prices (3.9%) fell 4.8% over the month (+0.3% qoq). The eventual dropping of the Auckland regional fuel tax and no increases to fuel excise over the next 3 years should help cap future fuel costs.


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