RBNZ’s own Q4 CPI indicator 4.5% y/y (prior 5.2%) – this is its Sectoral Factor Model

The Reserve Bank of New Zealand (RBNZ) have published their inflation data, its Sectoral factor model. Says the Bank of its own model:

  • We created the sectoral factor model. It estimates the common component of inflation in the CPI basket, the tradable basket, and the non-tradable basket, based upon separate factors for the tradable and non-tradable sectors. The data excludes GST.

We had the official CPI data earlier:

The RBNZ model also shows inflation falling:

What is the Sectoral factor model? In brief:

  • The model is based on the idea that inflation in each sector of the economy is influenced by a common set of underlying factors or “factors” such as changes in interest rates, exchange rates, and commodity prices.
  • The model describes how inflation in each sector of the economy is affected by the underlying factors. Estimates are derived from data on past inflation rates and other relevant indicators and are used to generate forecasts for future inflation in each sector.
  • The RBNZ sectoral factor model of inflation is particularly useful because it allows the central bank to identify the sources of inflationary pressures in different parts of the economy. For example, if inflation is rising rapidly in the housing sector, the RBNZ can use the model to determine whether this is due to changes in interest rates or other factors specific to the housing market. By understanding the sources of inflationary pressures, the RBNZ can adjust its monetary policy to target inflation effectively and achieve its inflation targets.

This article was written by Eamonn Sheridan at www.forexlive.com. Source