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ANZ Trims Annual Headline Inflation Forecast for New Zealand on Faster Moderation of Fuel Prices

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ANZ now expects second-quarter annual headline inflation in New Zealand to accelerate by 0.9 percentage points to 4%, slightly below its previous forecast of 4.1% but still a touch higher than a New Zealand central bank estimate of 3.9%, ANZ said in a Friday report.

The revision mainly reflects a faster moderation of fuel prices than previously assumed, as well as an expectation for lower pharmaceutical product prices, the bank said.

It added that annual non-tradable inflation is expected to slow slightly to 3.4% in the June quarter, while tradable inflation is anticipated to accelerate more than 2 percentage points to 4.8%.

On a quarterly basis, ANZ foresees headline inflation coming in at 1.4% driven mainly by fuel prices.

The Reserve Bank of New Zealand may need to raise its official cash rate by a higher degree if inflation pressures remain above forecast and if it finds that domestic firms are quick to pass on cost increases but slow to pass on decreases, ANZ said.

The biggest risk for the central bank is higher fuel prices potentially spilling over into other parts of the consumer price index basket, which could generate "a broader inflation impulse that proves difficult to contain," ANZ said.

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