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James Hyerczyk
New Zealand Kiwi

The New Zealand Dollar is surging early Tuesday on the back of stronger-than-expected consumer inflation data. Today’s report showed New Zealand inflationary pressures surged in the September quarter, recording the largest percentage gain since early 2017.

According to Statistics New Zealand, headline consumer price inflation (CPI) jumped by 0.9% in the three months to September, the largest quarterly increase since the first three months of 2017.

The number beat financial market expectations of 0.7%. Furthermore, it was more than double the 0.4% gain forecast by the Reserve Bank of New Zealand (RBNZ). The big jump in quarterly CPI to 1.9% from a year earlier, represents the fastest increase since the September quarter of 2017.

At 0230 GMT, the NZD/USD is trading .6574, up 0.0021 or +0.30%.

Forecast

The annual jump to 1.9% is well within the RBNZ inflation target of 1-3%, however, it is not likely to alter the central bank’s plans to keep its benchmark interest rate at current historically low levels.

Just a few weeks ago, a weaker-than-expected business confidence survey triggered a steep sell-off as investors began to price in the possibility of an interest rate cut. However, today’s solid inflation report likely reduces the odds of an RBNZ rate reduction.

The report from StatsNZ also said tradable inflation, or those influenced by offshore factors, rose at the fastest pace since the middle of 2015, primarily reflecting the impact of a weaker New Zealand Dollar and soaring fuel prices.

“On a quarterly basis, prices for tradables rose 0.9%, the highest quarterly increase since the June 2015 quarter,” it said. “Excluding vehicle fuels, the quarterly increase was only 0.3%.”

Fuel price surged 5.5% during the quarter, and 19% over the year. Even with the impact of soaring fuel prices, tradable prices grew by 0.8% from a year earlier.

Non-tradable prices, or those influenced by domestic factors, grew by a faster 2.6% over the year with higher prices for cigarettes and tobacco, construction, rents and local authority rates the largest contributor to the increase, according to StatsNZ.

Those price gains were partially offset by lower prices for education services following the introduction of one-year free provider-based tertiary education or industry training introduced in March.

Finally, while the headline increase in inflation was driven largely by one-of factors, the trimmed-mean measures released by StatsNZ that exclude extreme price movements grew by 1.8% to 1.9% from a year earlier, moving back towards the mid-point of the RBNZ’s inflation target.

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