Back
19 May 2015
RBNZ inflation expectations see a slight rebound – BNZ
FXStreet (Barcelona) - Craig Ebert, Senior Economist at BNZ Research, reviews the RBNZ inflation expectations report and further comments on the rate expectations in New Zealand.
Key Quotes
“We could hear the market breathing down the neck of this afternoon’s RBNZ survey of (inflation) expectations. So it will probably be disappointed to see the 1-year-ahead view of annual CPI inflation has moved up to 1.32%, from 1.11%, and the 2-year view has edged up to 1.85%, from 1.80%.”
“The latter would appear to have stabilised just a sliver below the 2.0% mid-point ideal. Not caving into to the 1.0% inflation (expectations) level the RBNZ has run as a rate-cut scenario. And if we can believe our CPI forecasts – along with the Reserve Bank’s supposition that inflation expectations exhibit signs responding to the actual inflation cycle – then we can imagine these inflation expectations variables will probably trend higher, not lower, over coming quarters.”
“The way we see today’s PPI (and CGPI) data is principally affirming the stories that are keeping New Zealand’s inflation numbers low for the meantime, as reflected in the Q1 CPI already out there on the table (0.1% y/y). Commodity prices and the cyclically high exchange rate, in particular.”
“What matters for the Bank, and the degree of OCR stimulus, are the CPI inflation forecasts for 2016/17. It’s not clear to us that these should fail to pick up in the manner the RBNZ forecast in its March MPS (when it expressed a firmly neutral stance, while still talking about up as well as down in respect to OCR potential). Two months down the track, with the RBNZ/FSR expressing significant concern about the resurgent housing market, and we now see the market plumping for rates cuts.”
“We don’t see a compelling case for OCR reduction in the immediate term. However, a case for it might develop as the year progresses. We prefer to wait and see and we think the RBNZ will see the sense in this approach as well.”
Key Quotes
“We could hear the market breathing down the neck of this afternoon’s RBNZ survey of (inflation) expectations. So it will probably be disappointed to see the 1-year-ahead view of annual CPI inflation has moved up to 1.32%, from 1.11%, and the 2-year view has edged up to 1.85%, from 1.80%.”
“The latter would appear to have stabilised just a sliver below the 2.0% mid-point ideal. Not caving into to the 1.0% inflation (expectations) level the RBNZ has run as a rate-cut scenario. And if we can believe our CPI forecasts – along with the Reserve Bank’s supposition that inflation expectations exhibit signs responding to the actual inflation cycle – then we can imagine these inflation expectations variables will probably trend higher, not lower, over coming quarters.”
“The way we see today’s PPI (and CGPI) data is principally affirming the stories that are keeping New Zealand’s inflation numbers low for the meantime, as reflected in the Q1 CPI already out there on the table (0.1% y/y). Commodity prices and the cyclically high exchange rate, in particular.”
“What matters for the Bank, and the degree of OCR stimulus, are the CPI inflation forecasts for 2016/17. It’s not clear to us that these should fail to pick up in the manner the RBNZ forecast in its March MPS (when it expressed a firmly neutral stance, while still talking about up as well as down in respect to OCR potential). Two months down the track, with the RBNZ/FSR expressing significant concern about the resurgent housing market, and we now see the market plumping for rates cuts.”
“We don’t see a compelling case for OCR reduction in the immediate term. However, a case for it might develop as the year progresses. We prefer to wait and see and we think the RBNZ will see the sense in this approach as well.”