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Australia’s closest Western trading partner New Zealand has surprised to the downside in a good way today, with national Q3 inflation decreasing to 5.6 per cent year on year (YoY).
It now sits just above Australia’s 5.2 per cent.
The decline represents a drop of 0.4 per cent since Q2 which came in at six per cent flat – NZ inflation has now hit a two-year low.
Kiwibank Chief Economist Jarrod Kerr told reporters the data means the RBNZ is unlikely to raise interest rates any further, in what will be the big factor watched by Australian traders.
“Whatever probability there was before today’s numbers, it’s closer to zero now,” he said.
“We are winning the war on inflation.”
Earlier this month, the central bank kept interest rates at 5.5 per cent. Consumer prices climbed 1.8 per cent in Q3 CY23, less than the expected 1.9 per cent climb.
NZX slips regardless
Despite the positive news, the NZX 50 was down about a quarter of a per cent at 12:45 pm AEDT today.
That news could be surprising, given a pause is good news for property sentiment, and the NZX has no shortage of exposure to property.
The country’s third largest company by market cap, Meridian Energy, is in the red.
Electricity demand has fallen due to warmer weather. Its two largest constituents, ANZ and Westpac respectively, were in the green.
Auckland International Airport, the fifth largest constituent, was down 1.20 per cent at lunchtime on Tuesday.
Recent election a consideration
New Zealand has in the last week elected a new conservative government after societal backlash to a two-term Jacinda Ardern government.
The NZ political landscape shifted to the right with a 19 per cent swing compared to the 2020 election. Two centre-right parties were the key gainers; the NZ National Party and the ACT Party.
The latter was formed by the Association of Consumers and Taxpayers.
Right-wing revival
Westpac analysts expect NZ’s political parties, once the dust settles, to begin campaigning for tax relief among low-earners, easing of property taxes on investment portfolio owners, and reduced regulatory burden on farmers.
The financial advice sector also stands to benefit from an easing of red tape on the sector under the new right-leaning government.
A reassessment of how carbon tax revenues are spent will also come to the fore, per Westpac.
Bank predicts coalition government
Additionally, a third party likely to become instrumental in a coalition government predicted by Westpac, New Zealand First, would like to see the government cut back on spending.
LNP die-hards on the web have been watching NZ’s election closely, and if the country’s economy improves at the same time a new right-wing government comes to the fore, it’s likely traders will connect those two facts whether fair or otherwise.
One only needs to consider the US, where inflationary dynamics out of any one individual government’s hands are squarely blamed on Biden. Albanese gets the same treatment.
Expectations beat
The NZ inflation read has beaten expectations all around the economy.
NZ’s own reserve bank, in its August monetary policy release, expected a flat read of six per cent to persist into Q3.
Some economists expected a 5.9 per cent read, while Westpac ANZ Senior Economist Darren Gibbs forecasted 5.8 per cent on Monday.
Food prices downward driver
Mr Gibbs pointed out that falling food prices in the country were likely to lead to a softer read in the nation than what had been the case at the time RBNZ forecast six per cent for Q3.
“Our forecast for headline inflation is 0.2ppts below the estimate published by the RBNZ in the August Monetary Policy Statement, which may reflect a decline in food prices since the RBNZ made its forecast,” he wrote.
Of course, the rate of decline was impeded by a huge spike in fuel prices in Q3.
Stats NZ Executive Nicola Growden took the positive view that at the same time, the rate of increase had also slowed.
All in all, a mixed bag for New Zealand.
