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New Zealand

Further inflation expectations in NZ

Borrowers face bad news this week that inflation will only moderate slightly from its previously high levels.

Monday, October 17, 2022, 6:00 AM

CPI is expected to rise 1.5% in the September quarter to reach 6.5% for the year, according to forecasts by ASB senior economist Mark Smith.

Smith said this was slightly down from 7.3% in the June quarter, but still too high for the Reserve Bank.

“We expect core inflation to remain strong near (or at) a multi-decade high in the third quarter,” he said.

“There is also the obvious risk that inflation could remain high and outside the target band for longer than the Reserve Bank can be satisfied with.”

With banks set to keep inflation between 1% and 3%, Mr. Smith could see another 50-point gain in November and a 25-point rise early next year, pushing the OCR to a peak of 4.25%. expected to reach.

This will put more pressure on retail rates, which have just risen in response to the last Reserve Bank rate hike.

Westpac senior economist Satish Ranchhod expects inflation to be slightly higher than Smith.

He believes the quarterly increase will be 1.8% and the annual increase will be 6.9%.

That’s a slight drop from 7.3%, but it’s still “a multi-decade high” due to food prices, housing costs, and higher municipal tax rates.

He thinks it will encourage the Reserve Bank to stay hawkish.

Ranchhod had previously forecast two more 50-point gains before the OCR plateaued at 4.5%.

Kiwibank economist Mary Jo Vergara forecasts 1.7% for the quarter and 6.8% for the full year. She believes OCR will peak at her 4%, lower than the levels of her two rivals.

Another problem expected to plague New Zealand is persistent inflation in the US.

Friday’s figures showed prices were up 8.2% in the year to September, down from 8.3%, but still higher than expected.

This is believed likely to push the already hawkish Federal Reserve to raise rates further.

That could further boost the US dollar as investors buy it to enjoy higher returns in America.

And if it weighs on the value of the New Zealand dollar, import inflation will rise, further exacerbating New Zealand’s predicament.

tag: inflation

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