There were two inflation data points from New Zealand for Q1 published yesterday. The one everyone is pointing to:

And the almost unknown one, preferred by the Reserve Bank of New Zealand:

MUFG ponder the policy trajectory for the Reserve Bank of New Zealand after the lower inflation numbers:

  • "The latest CPI report revealed that the inflation slowed unexpectedly for the second consecutive quarter from 1.4%Q/Q in Q4 of last year to 1.2% in Q1 of this year. It was the slowest quarterly increase in headline inflation since Q1 2021. The annual rate of headline inflation also slowed to 6.7% in Q1 as it moved further below the peak from Q2 of last year at 7.3%. It will be a notable surprise for the RBNZ who had been expecting the annual rate of headline inflation to remain at around 7.3%," MUFG notes.
  • "The report will give the RBNZ more confidence that inflation peaked at around the turn of the year which increases the likelihood that the RBNZ could pause their rate hike cycle at their next policy meeting on 24th May," MUFG adds.

The MUFG comments are via the folks at eFX.

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From the RBNZ, the latest Sectoral Factor Model inflation data:

New Zealand inflation rbnz sector 20 April 2023

What is the Sectoral factor model? In brief:

  • The model is based on the idea that inflation in each sector of the economy is influenced by a common set of underlying factors or "factors" such as changes in interest rates, exchange rates, and commodity prices.
  • The model describes how inflation in each sector of the economy is affected by the underlying factors. Estimates are derived from data on past inflation rates and other relevant indicators and are used to generate forecasts for future inflation in each sector.
  • The RBNZ sectoral factor model of inflation is particularly useful because it allows the central bank to identify the sources of inflationary pressures in different parts of the economy. For example, if inflation is rising rapidly in the housing sector, the RBNZ can use the model to determine whether this is due to changes in interest rates or other factors specific to the housing market. By understanding the sources of inflationary pressures, the RBNZ can adjust its monetary policy to target inflation effectively and achieve its inflation targets.