The fall in New Zealand’s headline inflation rate in Q2 largely reflected base effects, with underlying price pressures remaining strong. Accordingly, we think inflation will return to the RBNZ’s target only by end-2024, rather than mid-2024 as we were previously expecting. Nevertheless, as the economy goes from bad to worse, we still think the RBNZ will start cutting rates by early next year. Meanwhile, both employment and hours worked picked up firmly in Australia in Q2. However, with returns on increased labour input rapidly diminishing, we think those gains will unwind in the coming quarters.
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