NZ Q3 CPI Preview

New Zealand’s Q3 CPI will be released this Wednesday.

The RBNZ has already lowered the OCR by 75bps but at 4.75% it remains well above estimates of ‘neutral’. Signs of further underlying disinflation in Q3 could strongly point to another 50bp OCR cut in November.

For headline CPI inflation, the RBNZ’s August MPS forecasts had pencilled in +0.8% q/q and +2.3% y/y. Headline inflation is typically seasonally strong in Q3, with outcomes in original terms 0.4-0.5ppts higher than after seasonal adjustment in recent years.

Quarterly non-tradables inflation was forecast to be +1.4% q/q and +5.1% y/y, which would imply further modest slowing post seasonal adjustment.

Offsetting this to a degree was the expectation that tradables prices would fall 0.2% q/q in Q3, implying the anticipation of a sizeable drop in seasonally adjusted terms.

What’s our view?

In short, it is similar to the RBNZ’s August forecasts.

This week’s release of monthly price data for September allowed Q3 inflation forecasts to be firmed up. The monthly price indicators (excluding rents) cover ~35% of New Zealand’s CPI, with around half accounted for by food. The monthly rents data provide some insight to the quarterly CPI rents measure (9.5% weight), but it is not a close proxy by any means.

For Q3 headline inflation, our nowcast is +0.75% q/q and +2.3% y/y, which is close to the RBNZ’s August forecast.