WELLINGTON, April 17 (Reuters) - New Zealand's consumer prices rose in line with forecasts in the first quarter but domestically driven inflation remained surprisingly strong, prompting markets to push back the expected start of interest rate cuts.
The sticky inflation at home lifted the local dollar and swap rates, and is likely to see policymakers take a cautious approach to any rate cuts in the months ahead - similar to the Federal Reserve's recent stance.
The consumer price index climbed 0.6% in the January-March period from the prior quarter, and compared with a revised 0.5% rise in the fourth quarter, Statistics New Zealand data showed on Wednesday. On a year-on-year basis, the CPI increased 4.0%.
Both the quarterly and annual inflation rates were in line with analysts forecasts.
Worryingly, annual non-tradeable inflation - which strips out the effect of import prices - remained high at 5.8%, little changed from 5.9% in the fourth quarter.
That saw markets further pare back the amount of easing expected this year to 33 basis points, compared with 60 bps last week. Traders have been paring the quantum of cuts in recent days due to the still-strong global inflationary impulse.
They now see October as the most likely timing for an interest rate cut, from August last week.
Westpac senior economist Satish Ranchhod said domestic inflation is still running at rates that are much higher than the Monetary Policy Committee is comfortable with.
"It continues to look ‘sticky’. As a result, rate cuts won’t be on the table in the near term," he said.
The New Zealand dollar rose 0.2% to $0.5894 after the data, while two-year swap rates jumped 7 basis points to 5.1850%.
The Reserve Bank of New Zealand has held interest rates steady over the past several months while waiting for the impact of current tighter monetary policy to work through the economy and slow down inflation.
Last week, the RBNZ kept its cash rate at 5.5% for the sixth successive meeting and reiterated that a restrictive monetary policy stance is necessary to further reduce capacity pressure and bring down inflation.
Sticky inflation has also seen global policymakers, particularly led by the Federal Reserve, signal to markets that they are not in a rush to ease some of the most aggressive monetary tightening seen in decades.
The RBNZ had forecast at its February policy meeting that inflation would be 3.8% in the first quarter and return to its target band of 1% to 3% by the second half of 2024.
ASB Bank said it now expects the central bank to wait until February 2025 to cut the cash rate as policymakers will be wary of inflation getting stuck above 3%.
The main drivers of annual inflation were housing and household utilities, the statistics agency said in a statement.
“Rent prices are increasing at the highest rate since the series was introduced in September 1999,”said consumer prices senior manager Nicola Growden. (Reporting by Lucy Craymer; Editing by Leslie Adler and Shri Navaratnam)
