Preview Consumer Price Index - Q2 2002

(Release: 15 July)

Data Flash (New Zealand)

Preview - Consumer Price Index - Q2 2002 (Release: 15 July)

Deutsche Bank forecast: +1.0% qoq / + 2.8% yoy - balanced risk distribution

Consensus (median) +1.0% qoq/ + 2.7% yoy (range: 0.6-1.1% qoq)

RBNZ projection in May MPS : +1.1% qoq / +2.8% yoy

Previous release (Q1): +0.6% qoq / + 2.6% yoy

We estimate the CPI to have increased by 1.0% qoq in Q2, causing the annual rate of inflation to have risen from 2.6% to 2.8%.

The main upward contributors to the Q2 result are estimated to be: a 10.5% qoq rise in petrol prices, contributing one-third of the overall rise in the CPI;

a seasonal 7.5% qoq rise in international airfares, contributing just under one-fifth of the overall rise in the CPI; and

a rise in rentals and construction costs due to the buoyant housing market, contributing a further one-fifth of the overall rise.

The key downward contribution is expected to come from lower food prices, mainly due to lower prices for fruit and vegetables.

The RBNZ's last published Q2 inflation forecast of 1.1% (included in the MPS of 15 May) is marginally above market expectations. However, the Bank indicated in its 3 July statement that it is now more relaxed about the medium-term inflation outlook.

The weighted-median measure of inflation is expected to point to a less alarming trend in core inflation than implied by the high headline outcome. Thus reflects the fact that large prices increases are expected to have been recorded for a relatively narrow set of items (our forecast for the weighted median is 0.5% qoq).

Looking ahead, at this stage the Q3 CPI is expected to post a 0.5% qoq rise, leading the annual inflation rate to decline marginally to 2.7%.

Darren Gibbs, Senior Economist, New Zealand,

***The attached research constitutes Deutsche Bank's proprietary information*** This, along with an extensive range of other publications, is available on our web site http://research.gm.db.com