Today's strong Performance of Services Index (PSI) number - along with last week's manufacturing data - has prompted BNZ economists to lift their forecast for third-quarter GDP.
The PSI lifted sharply in August, its second strong monthly rise in a row, on the back of good growth in tourist numbers.
BNZ now sees growth at 1 per cent for the third quarter - taking annual growth to 5 per cent, albeit from a low Covid-affected base.
BNZ stopped short of lifting its OCR forecast from 4 per cent but warned the risks were now on the upside.
"The market continues to push up expectations for the peak in the OCR, now just above 4.50 per cent," noted BNZ strategist Nick Smyth.
"The market is now pricing in much more tightening than our central forecast for a 4 per cent peak in the OCR, although we certainly agree the skew of risks is to the upside."
The problem with stronger growth in the short term was that the RBNZ would need to do more to slow demand, said BNZ senior economist Craig Ebert.
"If GDP growth is, indeed, pressing on for the meantime, for how long can this reasonably continue? The Reserve Bank requires aggregate demand to slow to get it back in line with aggregate supply," he said.
"If this does not show signs of happening, then the RBNZ will have to tighten monetary conditions more than we are assuming, possibly resulting in a bigger economic correction later down the track."
Making Friday's call to lift its rate outlook to 4.75 per cent, ANZ chief economist Sharon Zollner stressed she was "not bullish on the economic outlook" long term.
"All up, while the growth profile is not strong, it's not clear that beyond the housing market, rate hikes delivered so far are succeeding in opening up much spare capacity in the economy," she said.
"That requires meaningfully lower household spending. The RBNZ needs to see slower growth, and it'll get it. But we think it'll take a higher OCR to do the job."
Risks were firmly tilted towards inflation and inflation expectations not falling as far nor as fast as required to get real interest rates to a sustainably contractionary level, meaning more work for the OCR to do, she said.
She acknowledged that there were growth risks which could see the OCR stop short of 4.75 per cent, but said there were also still risks the OCR could go above that level as well.
ANZ doesn't yet forecast any cuts to the OCR which would also keep upward pressure on longer term fixed mortgage rates.
In contrast many economists have pencilled in rate cuts from mid-2024.
ASB - which moved first after the GDP result to lift it's rates outlook - had already been leaning in that direction with its research suggesting there was no sign of the labour market cooling soon.
"We see the risk of high inflation outcomes persisting, with our recent work highlighting the tight labour market as being a key influence," wrote ASB chief economist Nick Tuffley earlier this month.
The labour market is tight. Photo / NZME
"Domestically generated inflation, which hit a record-high 6.3 per cent in June, could push higher over 2022 but then slow as pressures on capacity ease and construction cost and dwelling rental inflation cools."
Labour market conditions were having a huge influence on economic activity, inflation pressures and interest rates, he said.
"Our research points to these influences persisting. Compared to before the pandemic, the supply of people of working age that are available for work is likely to grow at a much weaker pace."
Labour markets were also tight in many OECD countries and New Zealand will struggle to attract and retain staff, Tuffley said.
"We foresee net migration outflows continuing into well into 2023. Moreover, demographic shifts will also slow growth in the pool of potential workers."
Organisations would continue to find it challenging to retain and recruit staff over the next couple of years, he said.
