New Zealand inflation stays near 32-year high, fuels central bank interest rates
New Zealand inflation remained near a 32-year high in the third quarter, reinforcing bets that the central bank will keep raising interest rates aggressively.Also Read| Protests in France over inflation. In attendance Nobel laureate Annie ErnauxAnnual inflation eased to 7.2% from 7.3% in the second quarter, Statistics New Zealand said Tuesday in Wellington. Economists expected the rate to drop to 6.5%. Consumer prices advanced 2.2% from three months earlier, exceeding the 1.5% median estimate. The Reserve Bank doesn’t expect inflation to return to its 1-3% target band until mid-2024 even as it raises the Official Cash Rate at a record pace. Economists are now predicting the RBNZ will need to move more quickly to regain control of prices, with ANZ Bank New Zealand today forecasting rate hikes of 75 basis points at the next two reviews in November and February. Also Read| Labour shortage costing German economy $85 billion per year“Today’s data gives the RBNZ little choice,” said Sharon Zollner, chief New Zealand economist at ANZ in Auckland, who now sees the OCR reaching a 14-year high of 5% by February. “They are further behind the inflation game than thought.”The New Zealand dollar firmed slightly after the release of the data, buying 56.58 US cents at 12:25 p.m in Wellington. Swap rates and bond yields rose.The RBNZ has been at the forefront of global monetary tightening as central banks battle to overcome inflation stoked by surging energy prices and supply chain disruptions. Aggressive TighteningNew Zealand inflation last slowed in the third quarter of 2020 and began accelerating from 1.5% in early 2021. The RBNZ has hiked the OCR by 3.25 percentage points in 12 months, delivering five consecutive half-point increases this year in the most aggressive tightening since the benchmark rate was introduced in 1999.In August, the bank forecast inflation would be 6.4% in the third quarter and would gradually slow over the next two years, dropping below 3% in the second quarter of 2024. ASB Bank today lifted its forecast peak for the OCR to 5.25% from 4.25% and predicted a 75 basis-point move in November.“A self-sustaining high inflation dynamic looks like it is becoming increasingly embedded,” said senior economist Mark Smith. “Restrictive OCR settings and a clear RBNZ focus on delivering eventual sub-3% inflation outcomes is needed.”Kiwibank also raised its projected OCR peak, to 4.5% from 4%.What Bloomberg Economics Says…“New Zealand’s surprisingly strong inflation result doesn’t necessarily mean price pressures are set to persist. But it does suggest that the Reserve Bank will stick with further aggressive policy tightening.”James McIntyre, economistPrice rises were widespread, the statistics agency said, with 10 of the 11 main groups in the consumers price index basket increasing in the quarter. The main drivers were food, residential construction costs and international airfares, it said.Non-tradables inflation, a closely watched indicator of domestic price pressures, accelerated to a record 6.6% from 6.3% in the second quarter. The RBNZ projected 6.3%.
