ANZ tips OCR will hit 4% in November after inflation climbs to 7.3%

  • Annual inflation has reached 7.3%, which is higher than most economists had expected
  • ANZ now predicts OCR will rise to 4% in November
  • Infometrics economist Brad Olsen says the magnitude of inflation is the new concern

Economists warn that inflation could be harder to contain than they had hoped, after Stats NZ reported that annual inflation had risen to a higher-than-expected 7.3% in the three months to the end of June.

Bank economists and the Reserve Bank had predicted annual inflation to be 7% or 7.1%, although researcher Infometrics correctly predicted a rate of 7.3%.

Inflation is now at its highest point since June 1990, with the new data prompting ANZ to change its forecast for interest rates.

It now expects the Reserve Bank to raise the official spot rate by 0.5% three more times this year, bringing the OCR to 4% in November.

ASB predicts annual inflation will “stay well above 6% for the remainder of the year,” with senior economist Mark Smith warning that even if inflation has peaked, as most economists believe, it “seems highly unlikely that high annual inflation will fall rapidly” ”.

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Informatics chief economist Brad Olsen said price increases for food, fuel and rent “met expectations.”

“More surprising and more worrying is the broader and faster rise in costs beyond these large groups, showing that inflation is broadening,” he said.

“A higher number of items are rising in price, with 66% of all items checked going up in price in the June quarter.”

Westpac predicted “continued pressure on households,” with senior economist Satish Ranchhod also noting that the high inflation “wasn’t just due to a few specific items.”

“Price pressure is boiling in all corners of the economy,” he said.

“Given the continued and widespread strength of inflationary pressures, we predict that the Reserve Bank will make a fourth increase of 50 basis points by the time of the August policy review.”

But unlike ANZ, it predicts that the Reserve Bank will fall back to 25bp gains in October and November, bringing OCR to 3.5% by the end of the year.

The political response to the inflation rate has been swift, with National Party spokesman Nicola Willis calling on the government to focus on “strengthening the productive economy and unlocking the bottlenecks in the economy that are exacerbating inflation”.

The plan should include “fixing failed immigration institutions and stopping adding costs to business,” she said.

Economists hope and expect that this quarter's inflation rate will be the high.

Sungmi Kim/Things

Economists hope and expect that this quarter’s inflation rate will be the high.

But Treasury Secretary Grant Robertson said inflation reflected the volatile and uncertain global environment and there were “no easy fixes”.

Inflation would “stay at levels above recent levels for quite some time,” Robertson said.

But he said low unemployment and public debt ensured the government was well positioned “to support New Zealanders through this challenging time”.

Gasoline prices rose 32% over the year, while diesel prices rose a staggering 74%, Stats NZ reported.

Worldwide, the demand for diesel exceeded the supply.

The cost of building new homes increased by 18% over the year and was also a major contributor to higher inflation.

“Supply chain issues, labor costs and increased demand have continued to drive up the cost of building a new home,” said general manager Jason Attewell.

Food prices rose slightly below headline inflation, ie by 7.1%, while rents rose by 4.3%.

The prices of so-called “tradable” goods and services, the prices of which are largely set abroad, rose 8.7% during the quarter.

But the prices of locally produced non-tradable goods and services rose 6.3%, exceeding most economists’ expectations.

“The spread of inflation will be a concern for the Reserve Bank,” Olsen said.

That view seemed to be reflected in the foreign exchange markets, with the New Zealand dollar rising just over a tenth of a US cent on the back of the Stats NZ release.

Capital economics economist Marcel Thieliant said higher-than-expected inflation made it more likely that OCR would peak higher than his own forecast of 3.5%.

“But we still think weaker economic activity will force the bank to stop tightening soon,” he said.

The consolation in the inflation data is that the quarterly price increase, at 1.7%, was lower than the 1.8% increase recorded in March and the 2.2% increase in the September quarter.

But the Treasury believes the cuts in fuel tax and public transport fares introduced by the government in March and now extended until the end of January have cut 0.5% of that quarterly figure, indicating that the otherwise would have been about 2.2%.

GOODS

Treasury Secretary Grant Robertson announces that the half-price cuts on fuel and public transportation will be extended until next year.

The effect of the fuel tax cuts will be reversed next year, assuming they are phased out from February.

Despite this, economists expect Monday’s figure to mark the peak of inflation, and the rate to fall when Stats NZ reports September quarter figures on October 18.

The Reserve Bank forecast in May that annual inflation would fall to 5.5% by the end of the year and 4.4% in March, before falling back within the 1% to 3% target by September next year. .

Katrina Dewbery, acting senior manager of Stats NZ, said the government would have been unaware of where the June quarter inflation data would come when it announced the extension of the tax cut on Sunday, as it had only made a few announcements in advance. 10:30 am was informed.

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