New Zealand inflation remains high but not as bad as central bank expected

New Zealand inflation remains high but not as bad as central bank expected

© Reuters. FILE PHOTO: A New Zealand Dollar note is seen in this picture illustration June 2, 2017. REUTERS/Thomas White/Illustration/File Photo

By Lucy Craymer

WELLINGTON (Reuters) – New Zealand’s consumer inflation held near three-decade highs last quarter but came in below the central bank’s forecast, prompting some analysts to bet that cash rate increases over the coming months might be less aggressive than previously thought.

Annual inflation ran at 7.2% in the fourth quarter unchanged from the third quarter and just below a three-decade high, Statistics New Zealand said in a statement on Wednesday.

Inflation was slight above economists’ expectations in a Reuters poll for a 7.1% annual rise but was below the Reserve Bank of New Zealand’s forecast of 7.5% inflation

On a quarter-on-quarter basis, the consumer price index (CPI) rose 1.4%, following a 2.2% increase in the third quarter.

“It is clear that overall inflation pressures are not as severe as the RBNZ feared,” analysts at ANZ Bank said in a note.

“The RBNZ now has the luxury of responding in the usual fashion to weakening activity data, reining in its hawkishness to some degree.”

Both ANZ and Kiwibank now expect the RBNZ to increase the cash rate by 50 basis points in February rather than a 75 basis point increase.

At the central bank’s last meeting in November it increased interest rates by a record amount, forecast further aggressive hikes and warned the economy might have to spend an entire year in recession to bring sky-high inflation under control.

The New Zealand dollar has eased back to $0.6480 from around $0.6505 earlier, while the two year swap rate is at 4.865% down from Tuesday’s close of 4.995%.

WAR ON INFLATION

Statistics New Zealand data showed price increases were broad based with rising prices for house construction and household utilities, higher food costs and increases in flight costs all on an upward trajectory.

Kiwibank economists said New Zealand is currently seeing peak inflation and the inflation, both offshore and onshore, is improving.

“The downtrend in inflation is encouraging, but it remains unacceptably high. We see inflation slightly above the top end of the RBNZ’s 1-3% target band by the end of this year,” Kiwibank added.


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Author: Reuters

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