The miss was too small to shift the policy outlook. Markets still price an October 28 hike as near certain and a cumulative 50 basis points of tightening by the end of February. The kiwi’s dip just below 0.57 suggests traders trimmed only the most aggressive hike bets. Oil is the key swing factor from here: the Middle East war is lifting fuel, fertiliser and transport costs, and with petrol already the biggest contributor to inflation, any further rise in crude feeds directly into the expected fourth-quarter rebound. That keeps the risk skewed toward a longer tightening cycle. NZD support is likely to depend on how hawkish the RBNZ’s guidance proves next week rather than on today’s data.

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Earlier:

• New Zealand Q3 CPI 3.7% y/y (expected 3.8%, prior 4.1%)

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New Zealand’s inflation undershot forecasts, but with core pressures firm and fuel prices climbing again, the miss looks more like a pause in the problem than a turn in it.

Summary:

• Annual CPI slowed to 3.7% in the third quarter from 4.1%, below the 3.8% Reuters poll forecast and the RBNZ’s 3.9% projection
• Quarterly CPI rose 0.7%, against expectations of 0.8%
• Petrol was the largest contributor to inflation despite easing from the June quarter; house-building costs also rose
• Non-tradeable inflation eased to 3.3% from 3.4%, while tradeable inflation was 4.3%
• Markets price a 98% chance of a hike next week and a full 50 basis points of tightening by the end of February; the NZD dipped to around 0.569
• Economists expect inflation to rebound in the fourth quarter, with ASB forecasting 4.5% by year-end

New Zealand’s annual inflation slowed to 3.7% in the third quarter, below economists’ forecasts but still above the top of the Reserve Bank of New Zealand’s target range, official data showed on Thursday. The result did little to shift expectations that the central bank will raise interest rates next week.

The consumer price index rose 0.7% from the second quarter, Statistics New Zealand said, compared with a 0.8% increase expected by economists polled by Reuters. The annual rate eased from 4.1% in the June quarter and came in below both the 3.8% consensus and the RBNZ’s own 3.9% projection. The central bank targets annual inflation of 1% to 3% over the medium term.

Statistics New Zealand said petrol prices were the largest contributor to inflation, even though they had eased from the June quarter, and that house-building costs had also risen. Non-tradeable inflation, which captures domestically driven price pressures, eased to 3.3% from 3.4%. Tradeable inflation, which covers imported goods including fuel, was 4.3%.

The New Zealand dollar dipped to around 0.569 against the US dollar after the release. However, markets continue to price a 98% chance of a rate hike at next week’s monetary policy review, and fully price 50 basis points of tightening by the end of February. The RBNZ has raised the official cash rate twice this year to 2.75%.

Westpac New Zealand senior economist Satish Ranchhod said that although the result was below the RBNZ’s forecast, firm core inflation would give policymakers pause for thought. He said a hike next week now looked like the path of least resistance, with market pricing and economist views converging on a move.

Economists expect inflation to pick up again in the fourth quarter as fuel prices rise once more. ASB forecasts inflation of 4.5% by year-end and said its 2027 profile looks considerably firmer than the RBNZ’s September projections. The Middle East war is adding to stagflation risks globally by disrupting energy supplies and shipping, which is lifting fuel, fertiliser and transport costs.

The data is the last major release before the RBNZ’s decision. It lands as inflation becomes a central issue ahead of the closely contested November 7 general election.

This article was written by Eamonn Sheridan at investinglive.com.

Source: Investing Live - News