Westpac: New Zealand's Consumer Price Inflation Bottoming Out

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Wednesday, Westpac Banking Corporation, in its preview on New Zealand's upcoming third quarter consumer price inflation data said it expects the headline inflation numbers to bottom out but forecasts underlying inflation to continue easing in the coming quarters.

The firm expects the consumer price index to rise 1% sequentially in the third quarter, while annual inflation is expected to ease to 1.4% compared with the 1.9% growth rate in the first quarter.

Westpac expects rising food, fuel and government charges to drive up quarterly consumer prices. Rising vegetable prices during the winter is likely to see the food group make the strongest positive contribution to inflation in the third quarter. The transport group is also expected to make a positive contribution to inflation, driven by a 2% rise in fuel prices. Further, higher government charges in the form of rises in the alcohol excise tax and local authority rates is also likely to boost the CPI.

With regards to annual inflation, Westpac expects the strong disinflation trend in the headline inflation figure to come to an end in the third quarter, with the effect of the massive spike in petrol prices in mid-2008 on annual inflation calculations decreasing. It expects annual inflation to slow to 1.4%, a marked decrease from the 5.1% growth recorded a year ago.

However, the firm expects various measures of underlying inflation to continue on an easing trend, with annual inflation excluding petrol forecast to ease to 2.7% in the third quarter compared to 3.8% a year ago. Further, the firm anticipates non-tradeable inflation to gain 0.7% from the last quarter but dip below 3% year-on-year for the first time since early 2002, to stand at 2.8% in the third quarter.

Meanwhile, the strong appreciation of the New Zealand dollar since early 2009 is expected to dampen tradeable inflation in the coming quarters. The firm expects a 1.2% sequential increase in tradeable prices in the third quarter but a 0.5% slide in annual prices.

The firm noted that there is no immediate need to hike the benchmark rate, explaining that it will take some time for the recovery to generate any significant inflationary pressure, and added that the concerns of the central bank should lie with correctly timing the removal of stimulus measures before the economic slack dissipates completely.

Statistics New Zealand is scheduled to release third quarter inflation figures on October 15.

Wednesday, Westpac Banking Corporation, in its preview on New Zealand's upcoming third quarter consumer price inflation data said it expects the headline inflation numbers to bottom out but forecasts underlying inflation to continue easing in the coming quarters. (Market News Provided by RTTNews)