New Zealand consumer inflation crushes expectations

New Zealand consumer inflation crushes expectations

 Annual inflation hit 7.2% in the third quarter, just below a three-decade high, Statistics New Zealand said in a statement on Tuesday. Inflation slowed slightly from 7.3% in the second quarter but far topped expectations in a Reuters poll for a 6.6% annualized gain. On a quarter-on-quarter basis, the consumer price index (CPI) rose 2.2%, following a 1.7% gain in the second quarter and beating expectations for a 1.6% increase. 

New Zealand consumer inflation crushed expectations in the third quarter with price gains becoming more widespread and entrenched, prompting analysts to bet on more aggressive central bank rate hikes next month and higher peaks for interest rates. “With the RBNZ having a bit of inflation between its teeth, all options are likely to remain on the table.” Smith said they have changed their OCR forecast and now expect a 75 basis point rate hike in November, and two further 50 bp rate hikes in February and April 2023. "Inflation is too high and is becoming increasingly entrenched," said Mark Smith, senior economist at ASB Bank. 

The main drivers of the 7.2% annualized inflation were rising prices for construction, local government taxes and rents for housing, Statistics New Zealand said in a statement. "The cost of building a new home continues to rise with supply chain issues, labor costs and higher demand, all of which combine to drive prices up," said Nicola Growden, senior manager for Statistics New Zealand. Earlier in October, the Reserve Bank of New Zealand (RBNZ) raised its official interest rate by 50 basis points to 3.5%, its fifth oversized move and eighth hike in 12 months. 

Analysts at ANZ also updated their OCR forecasts and now expect 75bp gains in November and February before the break. This will bring the peak rate to 5%, compared to the previous 4.75%. The RBNZ has raised interest rates by 325 basis points since October last year. This has signaled it will raise interest rates further as it serves to dampen inflation. Statistics New Zealand added that non-tradable annual inflation - a product made in New Zealand for domestic consumption - rose 6.6%, the highest since starting to track the data in June 2002.

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