Australian inflation may cool, while the RBNZ stays on hold in the near term but starts hiking in Q3

Overview

This report is JPMorgan's preview of one week of macro data and policy events in Australia and New Zealand. The core focus is on Australia's April CPI, 1Q26 private capital expenditure and building completions, as well as New Zealand's RBNZ rate decision and annual budget. The report believes Australia is showing near-term signs of easing inflation, though weaker demand and supply shocks coexist; New Zealand, by contrast, is in a phase of gradual economic recovery, still-elevated inflation, and monetary policy potentially shifting from easing toward normalization.

Core views

JPMorgan expects Australia's April CPI to slow on both a monthly and annual basis, with a risk that 2Q inflation comes in below the RBA's forecasts. A weaker Australian labor market, cooling housing market, and slowing consumption support the RBA keeping the cash rate stable for the rest of 2026. At the same time, AI-related data center construction is driving capex and non-residential investment, though reliance on imported equipment will weaken the direct pass-through to headline GDP. In New Zealand, the RBNZ is highly likely to keep the OCR at 2.25% this week, but given loose financial conditions and inflation above target, the report expects the first rate hike in September and cumulative tightening of 100bp by mid-2027.

Analysis framework

The report combines event previews with macro scenario analysis: for Australian inflation, it breaks down components such as fuel, travel, food, housing, clothing, and health insurance; for the investment cycle, it tracks private capex, building completions, import data, and AI data center construction; for monetary policy, it assesses the reaction functions of the RBA and RBNZ, inflation expectations, labor markets, and market pricing; for the New Zealand budget, it evaluates OBEGAL, bond issuance, debt targets, and election-cycle effects.

Methodology notes

• Macro Data PreviewHigh-Frequency Data and Official Release Tracking

  Use data such as CPI, employment, capex, construction, and household spending to assess growth and inflation momentum.

  The report combines components such as fuel, airfare/travel, health insurance, food, housing, and clothing with official data and industry information to assess Australia's April CPI and 2Q inflation risks.

• Monetary Policy AnalysisCentral Bank Reaction Function

  Compare how inflation, labor markets, growth, and financial conditions influence RBA and RBNZ decisions.

  The report argues that the RBA has entered a stable phase due to rising unemployment and a weakening housing market; the RBNZ, meanwhile, will look through the direct price-level impact of Middle East shocks but closely monitor broader pricing behavior.

• Investment Cycle AnalysisAI Capex Transmission Framework

  AI-related data center construction supports non-residential investment, but imported equipment reduces the multiplier effect on headline GDP.

  The report combines tech equipment spending, data center construction, non-residential building, and capital goods imports to judge that private fixed capital formation in 1Q26 remains resilient.

• Fiscal and Bond SupplyBudget Balance and Issuance Path Assessment

  Assess New Zealand fiscal policy and bond supply through OBEGAL, debt targets, fiscal deficits, and DMO issuance scale.

  The report expects New Zealand fiscal policy to remain on a tightening path, but Middle East shocks could widen deficits in FY27 and beyond and drive issuance increases in FY27 and FY28.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Australian cash rate and front-end rates

  Most directly affected by CPI, unemployment, housing, and consumption data.

  Strengths

  Inflation breadth and trimmed mean momentum are relatively mild, while rising unemployment supports an RBA pause.

  Weaknesses

  Headline inflation remains high, and energy and supply shocks could prolong the high-inflation period.

  Comparison

  Compared with market concerns about tightening risk, the report places greater emphasis on a stable cash rate for the rest of 2026.

  Risks

  If cost pass-through from fuel and food is faster than expected, the RBA may be forced to maintain a more hawkish stance.

• New Zealand OCR and front-end rates

  The RBNZ is steady in the near term, but the medium-term hiking path remains the report's core view.

  Strengths

  Inflation expectations are responding less than usual to gasoline prices, and the labor market has not deteriorated significantly.

  Weaknesses

  The OCR is still accommodative, financial conditions are relatively easy, and inflation is above target.

  Comparison

  JPMorgan expects the first hike in September, while market pricing is earlier, with one full tightening already priced in before July.

  Risks

  If the MPS is more hawkish or inflation expectations rise, the market may bring forward pricing; if growth weakens materially, the hiking path could be delayed.

• Australian non-residential investment and AI data center construction

  AI-related capex supports private fixed capital formation, construction, and equipment investment.

  Strengths

  The wave of data center construction is driving tech equipment spending and non-residential building.

  Weaknesses

  High reliance on imported equipment weakens the direct pass-through to headline GDP.

  Comparison

  Compared with weakening domestic demand, AI capex is one of the few investment sources that remain resilient.

  Risks

  There is uncertainty around the transmission speed from approvals to actual construction, the share of capital goods imports, and corporate investment confidence.

• New Zealand government bonds and fiscal supply

  Budget deficits, debt targets, and the DMO issuance path affect bond supply.

  Strengths

  The government continues to emphasize spending restraint and aims to bring net core Crown debt back below 40% of GDP over the medium term.

  Weaknesses

  Middle East shocks could raise cyclical spending and reduce revenues, widening deficit forecasts.

  Comparison

  Although FY27 and FY28 issuance is expected to rise to NZD36bn, net market supply may still decline as the RBNZ maturity effect fades.

  Risks

  Pre-election budget assumptions, the extent of deficit revisions, and the debt peak path could change supply expectations.

Key data

• Australia April CPI forecast0.6%m/m，4.5%oyaThe report expects both monthly and annual inflation to moderate from the previous surge phase.
• RBA 2Q inflation forecast riskheadline 1.5%q/q；trimmed mean 1.0%oyaThe report believes actual results risk coming in below the RBA SoMP forecast.
• Australia April unemployment rate4.5% saAbove both JPMorgan and consensus expectations, and the highest level since 2021.
• Australia April employment change-18.6K saLabor force participation fell to 66.7% sa.
• Australia 1Q26 private capex forecast+2.0%q/q saSupported by continued investment in tech equipment and data center-related spending since 2H25.
• Australia 1Q26 building completions forecast+2.0%q/q saStrength in residential and non-residential construction offsets weakness in public works.
• Australia April household spending forecast-0.5%m/mLower fuel prices and weak consumer confidence drag on discretionary spending.
• FY27 Australia capex intentionsA$165bn4.5% above the current estimate and 6% above the comparable FY26 estimate.
• Current assessment of New Zealand OCR2.25%The report expects the RBNZ to keep it unchanged this week.
• Forecast New Zealand hiking pathFirst hike in September, cumulative +100bp by mid-2027Market pricing is earlier than JPMorgan, with one full tightening already fully priced in before July.
• Assumed New Zealand 2Q26 inflation peak4.2%oyaGovernor Breman's previously flagged post-Middle East shock forecast, 1.5 percentage points higher than the previous round.
• Forecast New Zealand FY26 OBEGALx deficitNZD13.9bnPerformance through March was about 20% better than expected, but Middle East shocks could erase about NZD2bn of the positive variance.
• Forecast New Zealand FY27-FY28 DMO issuanceNZD36bn/年The report expects an increase of NZD2bn in each fiscal year, though net supply may still trend downward.

Impact & implications

For investors, the key issue for the Australian rates curve is whether inflation continues to come in below RBA forecasts and whether labor and housing markets weaken further; these factors support a stable cash rate. In New Zealand's rates market, the main tension is between the RBNZ's lack of urgency to hike in the near term and the need for normalization over the medium term; if the MPS tone is more hawkish than the OCR path, front-end rates may reprice. AI data center investment is a structural support for Australian growth, but reliance on imports means the direct contribution to GDP will not be amplified to the same extent as capex.

Risks

• Middle East shocks could raise energy and other input costs, causing corporate price increases and cost pass-through to accelerate beyond model norms.
• Weak Australian consumer confidence, a cooling housing market, and higher interest rates could further suppress household spending.
• The GDP boost from AI data center investment may be diluted by the high share of imported capital equipment.
• With New Zealand inflation above target and financial conditions relatively loose, if pricing behavior broadens, the RBNZ may need to tighten earlier or by a larger magnitude.
• New Zealand's fiscal budget is affected by the election cycle, revenue downgrades, and rising cyclical spending, creating upside risk to deficits and bond issuance.
• The main body of the report does not provide company fundamental analysis, ratings, or target prices for RS.US or SABR.US, and the related equity entities should not be regarded as covered names in this report.

What to watch

• Australia's April CPI and its fuel, airfare/travel, health insurance, food, housing, and clothing components.
• The deviation between Australia's trimmed mean inflation and the RBA's 2Q SoMP forecast.
• Whether Australia's labor market, housing transactions, and household spending continue to weaken.
• In private capex and building completions, the transmission speed of data center investment from approval to actual construction.
• Whether the RBA continues to emphasize data dependence and an observation period for Middle East shocks.
• This week's RBNZ MPS language on the OCR path, inflation forecasts, and growth forecasts.
• Whether New Zealand inflation expectations, gasoline price pass-through, and corporate pricing behavior broaden.
• OBEGAL, debt targets, and the DMO issuance path in New Zealand's annual budget.