Economists weigh in on US data, RBNZ stance
According to Kiwibank economists, this week’s economic focus shifts to inflation after recent US data, the NZIER's Quarterly Survey of Business Opinion, and a subdued Reserve Bank (RBNZ) announcement.
US inflation trends and Fed challenges
Last week’s US CPI data indicated a monthly increase of 0.4% in inflation, pushing the annual rate to 3.5%.
“A higher-than-expected print was not helped by the unchanged measures of core inflation,” said Kiwibank’s Jarrod Kerr, chief economist, Mary Jo Vergara, senior economist, and Sabrina Delgado (pictured above, from left to right), economist.
This development suggests that a Federal Reserve rate cut in June is now less likely, with the resilient US economy continuing to exert upward pressure on prices.
Impact on the New Zealand economy
The focus then shifted to New Zealand, where the latest Quarterly Survey of Business Opinion (QSBO) revealed a decline in business confidence.
“After a sugar rush to confidence following the election, businesses are back to feeling a bit more sombre,” Kerr, Vergara, and Delgado said.
Investment intentions have slipped back into negative territory, and a net 24% of businesses expect economic conditions to deteriorate.
RBNZ’s steady hand amidst uncertainty
RBNZ recently opted to maintain the cash rate at 5.5%, affirming that monetary policy is on the right track.
“The key message for households, businesses, and market traders was come back in May,” the Kiwibank economists said, indicating that RBNZ is waiting for more data before making further policy adjustments.
Anticipating the inflation report
Attention is now turning to this week’s inflation report, with expectations set for a quarterly rise in consumer prices by 0.8%, and an annual deceleration to 4.2%, marking the lowest rate since June 2021.
“Inflation will continue to fall from here, but risks to the RBNZ’s forecasts are tilted to the upside,” the economists said.
This could impact rate cut expectations and currency valuations, particularly if inflation does not decrease as anticipated.
Looking ahead: Inflation and policy direction
Despite the slower-than-desired reduction in inflation, forward-looking indicators suggest continued moderation in price growth.
“We’re in a holding pattern for now, but we still expect rate cuts to begin in November,” the Kiwibank economists said, reflecting a cautiously optimistic outlook for the near future as policies align with inflation targets.
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