Our take on the latest Consumers price index (Mon 20 Apr 2020)
Inflation up to 2.5%pa in the March quarter
Non-tradable inflation up to 3.4%pa
Food inflation up to 3.3%pa
The key numbers...
- Headline inflation jumped from 1.9% to 2.5%pa in the March quarter, well above the market’s expectation of 2.1%pa and the Reserve Bank’s forecast of 2.2%pa in its February Monetary Policy Statement.
- Alcoholic beverages and tobacco, food, and housing and household utilities were the fastest growing categories, up 5.1%, 3.3%, and 3.3%pa respectively.
- Goods inflation index jumped from 1.3%pa in the December 2019 quarter to 2.4%pa in the March quarter.
- Non-tradable inflation climbed to an 11-year high (excluding the 2010 increase in GST) of 3.4%pa, indicating that domestic inflation pressures were definitely picking up prior to COVID-19.
- Rental inflation, at 3.7%pa, hasn’t been this high since 2004, adding pressure to renters as they are faced with increasing unemployment and lower incomes because of COVID-19.
CPI components
Annual % changes
...and our reaction
- Although New Zealand only moved into Level 3 lockdown on March 23 and Level 4 on March 25, many households purchased bulk food and other goods, giving some impetus for stronger inflation later in the March quarter.
- Consumer demand for non-essential items will crash over the next 1-2 years as the economy enters a deep recession, and we expect inflation to slip below 1%pa over the coming year.
- This lack of inflation and the substantially softer labour market mean that further monetary stimulus is likely to be necessary from the Reserve Bank, beyond the 75-point cut to the official cash rate and quantitative easing implemented so far.
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