New Zealand CPI: Fourth Time’s a Failure

I’m sure you all know the old saying “third time’s the charm.” But have you ever heard of “fourth time’s the failure?” Apparently, it’s a thing in New Zealand… at least when talking about the consumer price index.

Yesterday, Statistics New Zealand released the consumer price index (CPI) for the last quarter of 2012. The index revealed that the inflation rate turned negative in Q4 due to the huge declines in food, household services, and communication prices. Specifically, the CPI showed that food prices plunged 1.8% while household services and communication respectively fell 1.8% and 2.0%.

On the bright side, the big declines were offset by the rises in housing and transportation. Both categories jumped 0.6%.

When all was said and done, however, I couldn’t deny the fact that the CPI for Q4 2012 disappointed the market greatly. It was at -0.2%, completely opposite the 0.1% increase the market had initially expected. To add insult to injury, it was the fourth consecutive quarter that the CPI has failed to meet forecast. If you include 2011, that number would turn to six!

New Zealand CPI 2012

The market took the weaker-than-expected figure to heart, especially as New Zealand’s CPI data is less frequently released than other countries. Remember that unlike most major economies who publish the CPI data monthly, New Zealand only prints it quarterly. Prior the release, NZD/USD had been sitting pretty above .8400. But after the CPI was published, NZD/USD was struggling to keep its head above .8350.

With this new data point, market participants know that the weak CPI reading may eventually translate to more dovish interest rate forecasts from the Reserve Bank of New Zealand, or at least hold off on any rate hikes. In fact, one of the major financial institutions in New Zealand, the ASB Bank, said that this new information has forced it to change its forecast for the RBNZ raising the official cash rate (OCR) from December this year to March 2014.

To me, this is a sign of worse things to come for the Kiwi bulls, but let’s see if the bulls are able to keep it together and prevent the Kiwi from losing more ground in the upcoming week.