Let’s be real, folks. The latest whispers from New Zealand suggest the Reserve Bank of New Zealand (RBNZ) isn’t losing sleep over a slight uptick in headline inflation. Capital Economics’ Abhijit Surya thinks the RBNZ is likely to shrug off this Q1 bounce, and frankly, I agree.
Here’s the deal: the RBNZ is laser-focused on core inflation, and thankfully, that beast is slowly but surely being tamed, heading towards the sweet spot of their 1-3% target range.
Surya astutely points out that all the underlying inflation gauges are trending downwards. So why worry about a temporary blip in traded and non-traded CPI? It’s like patching a leaky boat while ignoring the iceberg ahead – pointless!
Now, let’s unpack what’s really happening with inflation. Core inflation, unlike headline figures, strips out volatile elements like food and energy prices. This provides a clearer picture of the underlying price pressures in the economy.
Secondly, these ‘underlying’ gauges (like measures of wage growth or business confidence) are consistently signaling a cooling effect.
Finally, the RBNZ isn’t operating in a vacuum. Global disinflationary forces are at play, and New Zealand isn’t immune.
Capital Economics is predicting deeper rate cuts than the consensus, locking in near 2.50%. I’m inclined to agree. The RBNZ appears prepared to tolerate some noise in the data, betting on a more sustained downward trend in inflation. Don’t be surprised if we see more aggressive easing down the line. This isn’t about ignoring inflation; it’s about prioritizing long-term price stability, and frankly, it’s refreshing to see.
