New Zealand’s Q2 CPI rose 4.1% y/y and 1.5% q/q, both above forecasts and the RBNZ’s own 3.9% estimate.
Its sent the kiwi $ higher on the session.
Still to come is the RBNZ’s sectoral factor model, its preferred underlying inflation measure. Due at 3pm New Zealand time today, which is 3am GMT and 11pm US Eastern time on Monday.
This will markets a further read on the extent of underlying price pressure. The model is the RBNZ’s own preferred measure of core inflation, built by extracting a common inflation signal from a large number of individual CPI components rather than relying on the headline rate or simple exclusion measures such as CPI ex food and energy.
Unlike measures that simply strip out volatile categories like fuel and food, the sectoral factor model uses a statistical approach that looks across the full basket of CPI components to identify the persistent, broad based inflation signal common to most of them. By filtering out price moves specific to individual goods or services, such as the fuel swings that dominated today’s headline figure, the model is designed to give policymakers a cleaner read on the underlying, economy wide inflation trend that matters most for setting interest rates, rather than one distorted by a handful of large, short lived moves.
Given how heavily today’s CPI was skewed by petrol and diesel, with Statistics New Zealand noting the annual rate would have been meaningfully lower excluding those two items, the sectoral factor model reading will be closely watched for signs of how much inflation pressure is building beneath the surface. A hot reading would reinforce the case for further RBNZ tightening, while a more contained figure could ease some of the pressure building in rates markets following today’s upside surprise.
This article was written by Eamonn Sheridan at investinglive.com.