Source: Radio New Zealand
RNZ
- Headline inflation likely around 3 percent in December quarter
- Seasonal factors like international airfares pushed prices higher
- Economists say RBNZ is unlikely to be moved
The Reserve Bank will probably have to wait a bit longer for its wish for lower inflation, as new numbers are likely to show inflation remaining at the top of its 1 to 3 percent target band.
Expectations are for Stats NZ’s Consumer Price Index (CPI) to have risen 0.5 percent in the December quarter, taking the headline annual rate to 3 percent, on par with the September quarter, but higher than the RBNZ’s November forecast of 2.7 percent.
ANZ senior economist Miles Workman said seasonal factors were at play in the December period, forcing it to revise up its forecast to 3 percent.
“Well, the big surprise to us actually came with the release of the December Selected Price Indexes where we saw international airfares rise almost 33 percent month-on-month,” he said.
ANZ senior economist Miles Workman. Supplied
Higher accommodation prices also played a part, as well as higher petrol prices, offset by a seasonal fall in fruit and vegetable prices.
But beneath the surface, the underlying trend was heading in the right direction, Workman said.
To look at the underlying trend in the CPI, he said to look at the domestic side of the CPI basket (non-tradeables inflation), as well as services, and core measures that exclude volatile components like food and energy prices that tend to move around more often.
“On those measures, we are expecting to see inflation pressures still relatively contained,” Workman said.
“Non-tradeables inflation (domestic inflation) is expected to slow slightly, [and] the core measures are expected to remain close to that 2 percent target midpoint.”
Reserve Bank unlikely to be moved
ASB, which forecast annual inflation of 3.1 percent, did not think the RBNZ would be “in a mad rush” to change the Official Cash Rate (OCR) from 2.25 percent.
But it cautioned the central bank may step in if the economy began to heat up too fast, and inflation remained stuck near 3 percent.
Recent economic data such as quarterly gross domestic product, monthly manufacturing and services indexes numbers all pointed to the economy staging a recovery.
“We don’t envisage the RBNZ will be in a rush to change the 2.25 percent OCR and have pencilled in 50 basis points of OCR tightening from early 2027,” ASB senior economist Mark Smith said.
“We caution that the RBNZ may step in if the NZ economy heats up too quickly and inflation remains stuck around 3 percent.”
BNZ senior economist Doug Steel expected Friday’s headline rate to be 2.9 percent, and also did not think it would trouble the RBNZ.
“We don’t think the run of data is enough to have the [RBNZ] hiking its cash rate soon,” Steel said.
“But the data flow so far in the New Year firmly supports the case that the next move in interest rates is up, and that the balance of risk is accumulating toward this happening earlier than the Q1 2027 timeline the RBNZ indicated at its November MPS.”
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– Published by EveningReport.nz and AsiaPacificReport.nz, see: MIL OSI in partnership with Radio New Zealand
