NZ inflation unchanged, NZ dollar under pressure

New Zealand CPI, released quarterly, was unchanged in the fourth quarter at 2.2% y/y. This was slightly above the market estimate of 2.1% but marked the lowest inflation rate since March 2021. Transportation prices fell but food and housing prices rose at a faster pace than in the third quarter. On a quarterly basis, CPI ticked lower to 0.5%, down from 0.6% in Q3 and below the market estimate of 0.5%.

The inflation report didn’t show much change in CPI and the Reserve Bank of New Zealand remains on course to deliver a jumbo half-point cut at its meeting on Feb. 19. The markets have fully priced in a rate cut at that meeting, with a 66% probability of a half-point cut and a 33% likelihood of a quarter-point cut.

The RBNZ last met in November and slashed rates by a half-point at that time. The central bank has been aggressive in its easing cycle but the cash rate remains high at 4.25%. The RBNZ is expected to deliver a series of rate cuts in order to boost the weak economy, provided that inflation does not rebound higher.

There are no tier-events out of the US today. On Thursday, the US releases unemployment claims and President Trump will address the World Economic Forum. Trump’s comments on Monday, his first day in office, sent the US dollar sharply lower against the major currencies after he announced that he was delaying his trade tariffs until at least Feb. 1.