Inflation forecast to dip below 3% by 2024
The third-quarter inflation figure came in slightly lower than expected but was also moving in the right direction, according to ASB economists.
Kim Mundy (pictured above), ASB senior economist, noted that despite a 16.5% surge petrol prices in the third quarter, given the removal of excise fuel and tax cuts and higher international oil prices, and 9.4% jump in local authority rate, annual CPI inflation eased to 5.6% over the quarter, from 6% in Q2, which was its lowest since September 2021.
“Although the direction of movement was certainly welcome, we think it’s important not to get too ahead of ourselves,” Mundy said in ASB’s latest Economic Weekly. “Annual CPI Inflation has been above 5% for nearly two years and outside of the RBNZ’s 1-3% inflation target band for 2½ years. When it comes to inflation, time matters.
“The longer inflation remains high, the more people come to expect high inflation, and the harder it is to push inflation down. Workers, for example, will increasingly demand inflation compensation in wage negotiations, to maintain a level of real wages.”
So, with annual headline and core inflation rates in New Zealand still above 5%, Mundy said, “the champagne at the RBNZ is well and truly still on ice.”
“We think the RBNZ will want to be sure that inflation is back in the box before changing monetary policy settings, and that it will wait until inflation is back within the target band before cutting the OCR,” Mundy said.
“Easing capacity pressures in the labour market are encouraging and are consistent with an eventual cooling in core inflation. But uncertainty is high and elevated (and escalating) geopolitical tensions are an upside risk to New Zealand’s (and many other countries) battle to lower inflation.”
ASB is expecting annual headline inflation to dip below 3% in the second half of next year, which could potentially lead to an OCR cut in early 2025.
With Statistics NZ set to publish more monthly CPI data from November, that is, in addition to food prices, for example, Mundy said more timely data could provide the bank with “a better steer on quarterly inflation moves.”
She made it clear though that the data should not be taken as a monthly CPI indicator, which is released in many other countries, adding that New Zealand is the only OECD country not producing a monthly CPI or CPI indicator.
Click here to access ASB’s Economic Weekly.
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