Christina Leung: NZIER Deputy Chief Executive talks inflation forecast ahead of Q4 release

Stats NZ will release Consumer Price Index inflation numbers for quarter four on Wednesday, and economists are predicting it will be within the Reserve Banks's target range of 1 - 3%

It comes off the back of December card spending numbers which saw retail spending increase by 2%

NZ Institute for Economic Research Deputy Chief Executive Christina Leung says they're expecting a rise of 0.6% for the quarter, and put annual inflation at 2.2%

She says today's numbers shouldn't change the chances of a rates cut in February, expected to be 0.5%

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Episode Transcript

Speaker 1 (00:00):
Right, we're getting inflation figures today. Economists of forecasting it
could fall between two point one to two point three percent,
which is within the Reserve Banks target range. Nzed Ier.
Deputy Chief Executive Christina Lung joins me. Now, good morning, Christina.

Speaker 2 (00:15):
Moderna, what's your pick. We forecast CPI to have increase
point six percent over the final quarter of last year. Now,
this will bring in your CPI inflation to two point
two percent for the year, as you say, still within
the Reserve Banks one to three percent inflation target fan.
So for the quarter, we do expect that housing costs
such as rents and construction costs to be a key

(00:36):
driver behind the increasing prices over the quarter.

Speaker 1 (00:38):
Because I was going to say, this inflation data is
for December, so what factors will be taken into account
during that period aside from those two things.

Speaker 2 (00:46):
So besides the CPI result itself, we do see a
suite of other inflation indicators. For example, we are seeing
it continue easy in inflation pressures in the news and economy.
Our latest NDIO less of our business opinion shows some
easing and cost pressures reported by firms, while proportion of
firms raising prices in the December quorder remain low. So

(01:08):
although firms are feeling positive about a recovery and demand
a head, at the moment demand conditions do remain weak
and does it weighing on the price and power firms.

Speaker 1 (01:17):
So Christina, how is this going to set us up
for this year? How are you expecting inflation to track?

Speaker 2 (01:23):
So we do see list in inflation over the coming year,
but still comfortable and within the Reserve banks one to
three percent inflation tiger band. The recent appreciation in the
New Zone dollar does post some upside rest to inflation,
given that raises the price of important goods. So already
in our MZAAR quarterly Serve our business opinion, we had

(01:45):
retailers reporting increased cost pressures and we expect that the
low New Zealand dollar to have played a part in this.
So the impact of the low New Zealand dollar on
inflation is definitely an important development to keep an eye
on for now, though the signs are that inflation is
contained and within the Reserve banks target bands. The Reserve
Bank has indicated that late last year it's intended to

(02:06):
cut interest rates by another fifty basis point at the
February meeting, and we don't see recent developments standing in
the way of that.

Speaker 1 (02:14):
You mentioned the week New Zealand dollar there, what about
higher oil prices? Could they impact inflation this year?

Speaker 2 (02:20):
Certainly? So you do tend to see the lower New
Zealand dollar the impact, the more immediate impact of that
comes through in petrol prices at the pump and also
crude all price Global crude all prices play a part
when it comes to what we pay for petrol here
in New Zealand. Over the longer term, New Zealand dollar
does have tend to have been more lagged impact on

(02:41):
a range of other household imported household goods, So you
do tend to see that comes through in the next
few quarters when it comes to the impact of the
lower New Zealand dollar on prices on the retail front.

Speaker 1 (02:52):
You mentioned half percentage point cut to the official cash rate.
When do you sort of expect that When would you
expect that to kick in?

Speaker 2 (03:02):
So back in late last year, the Reserve Bank had
indicated that it would look to cut the oco bernard
the fifty basis point in its February meeting and then
and for the further easing to be more measured beyond that. Certainly,
when we look at what the recent to continue easing
and inflation pressures, it does suggest that recent deviropments are

(03:26):
on track in line with the Reserve Banks forecasts. So
we do expect that it will follow through with that
fifty basis point cut in its February meeting.

Speaker 1 (03:34):
Okay, cool, what is the impact you think of Trump's
tariffs and potential tariffs?

Speaker 2 (03:41):
So there has been concern about the inflationary the potential
inflationary impact of fiscal policies are in the US, so
that will be an influence in terms of the longer
term path of interest rates. The fact that there's already
a discussion about the potential with the inflation andy impactful
interest rates to be high for longer in the US,

(04:02):
So that does play a part in terms of a
particularly with the impact on the New Zone dollar mis
interst rate differentials. If interest rates were to stay higher
for longer in the US, then that potentially continue to
put down with pressure on the New Zone dollar, and
that plays a part in terms of the price of
important goods. Here. Certainly, it could play a part in

(04:25):
terms of the other factors such as how those prices
global prices feed into prices here in New Zealand as well.

Speaker 1 (04:32):
A lot to keep our eye on this year.

Speaker 2 (04:34):
Christina certainly never dull moment.

Speaker 1 (04:38):
Alwa's good to talk. Thank you so much. That was
Christina Leung who is the Deputy Chief Executive at n
Z I e R. And so of course those inflation
figures will be out today.

Speaker 2 (04:53):
For more from Early Edition with Ryan Bridge.

Speaker 1 (04:55):
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