Q4 CPI Preview: At around 2%
- We expect a 0.4% quarterly increase in Q4 headline CPI, with annual CPI inflation falling to 2.1%, broadly in line with the RBNZ’s November MPS pick.
- The moderation in non-tradable inflation rates is expected to continue, but higher tradable prices over 2025 will likely push aggregate CPI inflation higher at the margin by year end.
- A 50bp cut in February and 3.25% OCR endpoint is our base case scenario, but the timing and magnitude of OCR moves hinges on how events pan out.
We expect the general cooling in inflationary pressures to continue when Stats NZ releases Q4 data on 22 January. Our Q4 CPI pick is for a 0.4% quarterly increase in headline CPI, with annual CPI inflation falling to 2.1%, its lowest since early 2021. Our pick is broadly in line with the November MPS expectations. Risks are broadly balanced. The moderation in CPI inflation is driven by cooling non-tradable inflation. This predominantly reflects slowing increases in housing and services inflation that is the consequence of a pronounced period of softening economic conditions and growing spare capacity. Core inflation measures are expected to ease towards the upperpart of the 1-3% inflation target band. The deflationary impulse provided by lower tradable prices looks to have ceased, with Q4 prices are expected to remain flat, following four successive quarters of decline. Reflecting a combination of influences, modest increases are expected for tradable prices over 2025. This should push overall inflation slightly higher by the end of 2025. With inflation effectively parked within the inflation target zone, the RBNZ is well positioned to continue to promptly normalise OCR settings. We expect a 50bp February cut and a 3.25% OCR by mid-2025. Our base case is that the OCR will not need to move below circa 3.25% neutral levels in 2025, but the inflation outlook remains highly uncertain and is conditional on several factors.
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Nick Tuffley
ASB Chief Economist
Since starting out in 1997 as an economist, it's fair to say Nick has seen a few hair-raising moments over the years, including the Asian Financial Crisis and the Global Financial Crisis.
One of Nick's strengths is his ability to communicate complex ideas in a readily understandable and entertaining way. He thrives on helping people understand the economic environment to help enrich the quality of their business or personal life. He’s proud to lead a team that has won two Forecast Accuracy Awards from Consensus Economics, and has a strong track record with their Official Cash Rate and dairy price forecasts.
Nick grew up in Christchurch and graduated with a Master of Commerce degree from the University of Canterbury. He learned his economic ropes at the Reserve Bank of New Zealand before a long stint as a Senior Economist at Westpac, and joined ASB as Chief Economist in 2007.
- Email: Nick
Mark Smith
Senior Economist
Mark joined ASB in 2017, with over 20 years of public and private sector experience working as an economist in New Zealand and the UK.
His resume includes lengthy stints at ANZ and the Reserve Bank of New Zealand, and he has also worked at the Bank of England, HM Treasury and the New Zealand Transport Agency. Mark's areas of specialisation include interest rate strategy, macro-economic analysis and urban economics.
Born and bred in the Waikato, Mark studied at Waikato University where he graduated with a Master of Social Sciences, majoring in Economics.
Mark's key strengths are the ability to use his extensive experience, inquisitive nature, analytical ability, creativity and pragmatism to dig a little deeper and to deliver common sense solutions to tackle complex problems.
When not at work Mark likes to travel, keep fit and spend time with his friends and family.
- Email: Mark
Yen Nguyen
Economist
Yen Nguyen joined ASB Bank in June 2024, bringing over 10 years of experience as a policy analyst in the Vietnamese government. Her expertise lies in macroeconomic and policy analysis, with a strong focus on economic strategy and regulatory frameworks.
Yen grew up in Hanoi, Vietnam and holds a Master’s Degree in International Studies from Korea University (Seoul) and a Ph.D. in Economics from the University of Auckland. Her current focus is on New Zealand’s housing market and regional development, delivering clear, practical insights to help New Zealanders understand market trends, and the economic factors influencing their communities.
Yen is passionate about applying her skills to address real-world economic challenges and supporting sustainable development.
- Email: Yen