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NZ CPI below expectations

Written by Sam Coxhead on April 18th, 2011.      0 comments

11:00 AM (NZT) New Zealand inflation number just released showed a .8% rise for the quarter against an expectation of 1.0%. This rise was primarily driven by higher petrol prices and increased prices of tobacco products due to the increase in Government excise duty in January. Reaction to this number has seen the NZD sell off from the high it set in early trade this morning, and is down around .3% across the board.
The NZD has remained in demand across the board since RBNZ Governor Bollards comments last Tuesday that “If households and firms use the income boost from higher commodity prices and exchange rates to bring forward consumption and investment, or increase borrowing, then pressure on resources in New Zealand would lead to more inflationary pressure. Monetary policy would need to counteract any rise in inflation expectations.”
Given that there is little evidence of a slowdown in the Asian growth profile at this stage, the prospect of higher interest rates in NZ has driven the demand. I can’t help thinking that this maybe a piece of gamesmanship from Dr Bollard. A higher New Zealand dollar certainly will help contain inflationary pressures, which in turn reduces the need for dramatic rises in the cash rate which would hamper the recovery of the fragile non-export sections of the domestic economy.
Lower than expected levels of inflation in the UK and the US last week have enabled the easy passage higher for the NZD across the board last week. There is nothing else in the way of economic data due for release this week, and direction here will be driven by external factors.
  Current level Pre-NZ CPI Chge since NZ CPI
NZD/USD 0.7961 0.7984 -0.3%
AUD/USD 1.0549 1.0550 0.0%
NZD/AUD 0.7547 0.7569 -0.3%
AUD/NZD 1.3250 1.3211 0.3%
NZD/GBP 0.4881 0.4894 -0.3%
NZD/EUR 0.5525 0.5539 -0.3%
NZD/JPY 66.20 66.36 -0.2%
NZD/CAD 0.7645 0.7665 -0.3%