- We expect the CPI to barely increase in Q1, rising 0.1% qoq and 0.3% yoy.
- Petrol price declines will be offset by tobacco tax increases.
- Beyond the noise, inflation is still absent and we expect two further rate cuts over 2016.
We expect the CPI to barely increase over Q1 2016, rising 0.1% qoq and up 0.3% yoy. Q1 price trends may be overshadowed by a series of large individual moves that are typically looked though when assessing core inflation, for example petrol, seasonality and taxes. However, beyond taxes and housing we see very little evidence of inflation picking up. Our forecast is slightly softer than the RBNZ’s forecast at the March MPS. But we also see slightly stronger non-tradable inflation – the component of inflation that the RBNZ has the most influence over. In terms of an April OCR rate cut, a slightly weaker CPI result may not necessarily provide the case for urgency. As a result, the RBNZ could hold to its preference for MPS moves over OCR reviews. We continue to expect two further OCR cuts this year.