Kiwi in focus as NZ inflation eases to 3.7%: year-on-year vs quarter-on-quarter

New Zealand inflation cooled more than expected in the third quarter, putting the New Zealand dollar (the "kiwi") in focus this evening. According to investingLive, Q3 CPI rose 3.7% year on year against 3.8% expected and 4.1% before, and 0.7% quarter on quarter against 0.8% expected and 1.5% before.

The data landed after the day's ECB reference rates were set, so the fixings do not show the reaction. On the ECB fixing of 21 October, NZD/USD rose 0.24% to 0.5692, while AUD/USD was the biggest mover among the majors, up 0.70% to 0.7034. Late in the day, Investing.com reported the dollar up slightly ahead of a busy run of central bank meetings. investingLive noted that oil moved higher on Gulf security worries, and that a US 20-year bond auction sold at 5.469%, above the 5.460% pre-auction level. For a fuller wrap, see our sister site's take on the dollar, Gulf oil risk and the NZ inflation miss.

What is year-on-year vs quarter-on-quarter change?

The same inflation report gives two numbers. They measure different time windows.

• Year on year (y/y) compares prices now with prices 12 months ago. It shows the trend over a full year.
• Quarter on quarter (q/q) compares prices now with prices three months ago. It shows the most recent pace.

The y/y figure is smoother but slower to react. It still carries price rises from earlier quarters. The q/q figure is noisier but shows turning points sooner. When the q/q pace slows sharply, the y/y figure usually follows lower over the next few quarters.

A worked example

Take New Zealand's numbers from investingLive.

1. The latest quarter. Prices rose 0.7% in Q3. If that pace held for a full year, compounding four quarters gives: 1.007 × 1.007 × 1.007 × 1.007 ≈ 1.0283. That is an annualised pace of about 2.8%.
2. The prior quarter. Prices rose 1.5% in Q2. Annualised: 1.015⁴ ≈ 1.0614, or about 6.1%.
3. The y/y figure. At 3.7%, it sits between those two paces because it includes four quarters, fast and slow ones together.

So the headline 3.7% understates how much the pace slowed in the latest quarter. The quarterly data show momentum dropping from roughly 6.1% annualised to roughly 2.8%.

The y/y rate also fell from 4.1% to 3.7%. A y/y rate drops when the newest quarter's rise is smaller than the quarter from a year earlier that leaves the 12-month window.

The same logic applies to exchange rates. NZD/USD's fixing rose 0.24% from the previous day, but 1.39% compared with the 14 October fixing. Different windows tell different stories about the same market.

Why it matters for new traders

Markets react to the number that surprises most. Here, both figures came in 0.1 percentage point below forecasts. investingLive's preview had framed the release as coming ahead of a likely RBNZ rate hike. Softer inflation can change how traders price that decision, and the currency often moves on that shift.

Knowing which window you are looking at helps you avoid misreading a release. A high y/y number can hide a slowdown. A low q/q number after a big jump can be one calm quarter in a hot trend. Check both, and compare each with its forecast and prior.

You can follow the kiwi on a NZD/USD chart and compare it with the AUD/USD chart.

Key terms

• CPI (Consumer Price Index): a measure of the prices households pay for goods and services.
• Year on year (y/y): change versus the same period 12 months earlier.
• Quarter on quarter (q/q): change versus the previous three-month period.
• Annualised: a short-period change scaled up to show what it would equal over a full year.
• RBNZ: the Reserve Bank of New Zealand, the country's central bank.
• Fixing: the ECB's official daily reference rate, set once per business day, not a live quote.