The bank also forecasts a final 25bp rate hike in May
ASB is expecting a 1.8% quarterly rise in Q1 headline CPI, with annual CPI inflation steady at 7.2%, close to its highest since 1990 (after the GST rate lifted from 10% to 12.5%).
In ASB’s Economic Weekly publication, the bank’s economists said surging food prices and increased housing costs were expected to make up two-thirds of the quarterly increase, with generalised price hikes making up the remaining third.
“Annual rates of tradable CPI inflation are cooling, but non-tradable and core inflation are expected to come in close to (or at) multi-decade highs,” the economists said.
The figures, they said, would no doubt be an influential factor for the Reserve Bank’s monetary policy decision in late May.
“For the RBNZ to call a halt to OCR increases in May, it would need to be confident by then that inflation is likely to be contained more easily than it has been banking on in its recent forecasts,” the economists said. “The CPI is one key gauge of current inflation pressures, as well as the formal target for the RBNZ.
“At this point, we don’t expect the CPI will give the RBNZ sufficient comfort that its job is done, and that it will judge its ‘least regrets’ action is to lift the OCR in May (we expect by a final 25bp). But the May meeting is the first OCR decision since the August 2021 meeting (a day after the Level 4 lockdown was declared) for which there is just a hint of a question mark about whether the RBNZ might actually pause. It will very much be about the data as we near the end of the tightening cycle.”
Last week, Mark Smith (pictured above), ASB senior economist, suggested that the current neutral rate OCR at was just above 3%, and that the degree of monetary restraint in this tightening cycle would be similar to what was in place prior to the GFC.
Aside from the CPI, ASB said there are some other releases and events to keep an eye on, including REINZ’s housing data on sales and prices for March.
“We expect that NZ house prices eased again during March,” the ASB economists said. “Near-term housing market activity metrics hit fresh lows in February’s data, suggesting further cooling is likely. However, it is difficult to ascertain the near-term impact from the ongoing fallout from recent weather events on both activity and house prices. By mid-2024, we expect house prices to have eased up to 25% from their 2021 peak.”
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