This after inflation clocks in unchanged
New Zealand’s biggest bank has lowered its forecast for interest rate hikes after new Stats NZ data showed that annual inflation remained unchanged at 7.2% in the December quarter.
Economists had different views regarding the latest inflation figures, but ANZ bucked up from the fact that inflation was not as bad as previously forecast by the Reserve Bank and that home-grown inflation seemed to have stabilised.
ANZ initially predicted the OCR to increase by 75 basis points to 5% next month and to peak at 5.75% later in the year but has now revised down its forecast to a 50bp hike next month and a 5.25% peak, Stuff reported.
“Signs that inflation will ease meaningfully over 2023 are becoming increasingly clear,” the bank said in a research note.
Kiwibank, too, downgraded its forecast from 75bp to a 50bp hike, and now expects an OCR peak of 5% in the current cycle.
In the September quarter, the annual movement in the consumer price index sat at 7.2%, after peaking at a 32-year high of 7.3% in the June quarter.
Most bank economists had been expecting inflation to slightly decline to 7.1% – that’s lower than RBNZ’s November forecast of a new record high of 7.5% and the 7.2% predicted by ANZ, Stuff reported.
Primarily responsible for keeping inflation running hot were higher food prices, airfares, and stubbornly high construction costs.
Grocery food prices rose 10.2% over the year, and “passenger transport services” jumped 12.6%, driven by steep rises in both international and domestic airfares, which were up 14.1% and 18.9%, respectively, over the quarter, Stats NZ reported.
Finance Minister Grant Robertson said the government was doing its part by reducing its spending to more normal levels, citing a Treasury forecast that government consumption would decline by 8.2% in real terms over the next two years. Robertson said the government was also tackling the underlying causes of high prices by “taking action at the petrol pump and supermarket check-out to improve competition.”
National Party leader Christopher Luxon was not of the same view, however, saying the government had no plan to solve the underlying issues of the disappointing inflation figures.
The things the government ought to do were ideas National had been talking about for a year, Luxon said.
“Don’t pass costs onto businesses who can’t afford it because they only pass it onto consumers with higher prices, make sure you open up our immigration settings so we can get growth into the productive economy, control government spending, and get the Reserve Bank into fighting inflation,” he said.
Jeremy Couchman, Kiwibank senior economist, said there were some positive signs.
“Headline inflation remains uncomfortably high; however, there are signs we are past the peak in the current cycle,” Couchman said. “Cost of construction is starting to come back, which is consistent with a housing market that is cooling pretty rapidly.”
Brad Olsen, Infometrics principal economist, was concerned, however, about inflation being very broad based, as shown by the latest figures, with 72% of the items tracked by Stats NZ increasing in price, which he said was the second highest on record.
“It is the sustained broadness in inflation that is worrying and says we haven’t done enough yet,” Olsen said.
Satish Ranchhod, Westpac senior economist, said the size of the rise in airfares was the main surprise.
Mark Smith, ASB senior economist, said annual inflation was likely to have peaked mid-last year based on the figures and would likely cool this year, but that the removal of government transport and fuel subsidies could slow that decline.
Smith said there was still enough “under the surface” to concern the central bank, which ASB and Infometrics still expected would lift the OCR by 75 basis points to 5% in February, Stuff reported.
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