The Consumer Price Index is sitting at 6.9 per cent for the year to March. Photo / 123rf
The Consumer Price Index is sitting at 6.9 per cent for the year to March. Photo / 123rf
Despite last week’s good news about falling food prices in September, don’t expect quarterly inflation figures, due out tomorrow, to deliver much respite.
Economists think the Consumer Price Index inflation rate has kept rising in the three months to September 30.
On an annual basis, Westpac and KiwiBank economists arepicking a marginal fall from the previous (July quarter) 6 per cent.
Economists at ASB and ANZ are forecasting a slight uptick - to 6.1 per cent. But all of them expect a rise in the rate on a quarterly basis.
Whichever side of the divide it lands, it seems that countervailing forces - falling food prices but rising petrol prices - have put any big movements on hold for a while.
“It’s an important one,” said KiwiBank senior economist Mary Jo Vergara. “It’s the last inflation read for the year, and a key release ahead of the RBNZ’s November decision. The RBNZ [Reserve Bank] has adopted a data-dependent approach. And where next week’s print will land will be key in deciding their next move.”
KiwiBank was forecasting that consumer prices jumped a strong 1.9 per cent over the quarter alone.
“The uptick in global oil prices, just as the fuel excise tax was re-applied, is the leading reason we expect an acceleration in the quarterly pace of price gains,” said Vergara.
Annually, KiwiBank sees inflation decelerating to 5.8 per cent from 6 per cent.
That estimate was a little softer than the RBNZ’s. In the August round of forecasts, the RBNZ was expecting a 2.1 per cent quarterly rise and an unchanged annual rate.
“The recent uptick in petrol prices is the main reason why we expect the quarterly pace to accelerate. However, the material softening in food and housing-related prices should provide some offset,” Vergara said.
Westpac has forecast a 2 per cent quarterly rise, for an annual rate of 5.9 per cent.
But ANZ and ASB economists struck a gloomier tone.
ASB economist Mark Smith.
“We anticipate that the report will highlight that the inflation problem has by no means been solved, and that there are still real question marks around whether an OCR of 5.50 per cent is sufficient to get inflation sustainably back to target in an acceptable timeframe,” ANZ economist Henry Russell said.
“Specific drivers include the end of the fuel excise, road-user charges and public transport subsidies, sharply higher oil prices, which have also lifted fuel prices, and a big jump in local authority rates bills.”
Beyond that, broader domestic inflation pressures were expected to remain intense, Russell said.
ASB senior economist Mark Smith takes a similar line.
“Many of the near-term upside risks identified by the RBNZ look to be crystallising - higher prices for fuel, public transport, local authority rates, accommodation and insurance - that should contribute more than half of the quarterly rise in [third quarter] consumer prices,” Smith said.
Core inflation rates were expected to remain high, he said. The RBNZ would be looking for signs of slippage, providing it with some reassurance that the extensive monetary tightening to date is gaining traction.
“Conditions that should see annual inflation settle below 3 per cent look to be in place, but a nervous wait lies ahead,” Smith said.
Monetary policy was clearly working in terms of cooling the economy and inflation pressures; pricing indicators across a range of surveys show that, said ANZ’s Russell.
The debate was now around whether it’s happening fast enough to ensure the inflation decline doesn’t stall.
“[A higher CPI figure] may not immediately result in a hike. It’s going to take a solid body of evidence to draw the [Monetary Policy] Committee back to the hiking table, naturally. But we do think that evidence will accrue; the question is one of timing,” Russell said.
Because the RBNZ had already signalled that it expected a strong inflation print, the hurdle to an OCR hike in the coming meetings remained high, said ASB’s Smith.
“Moreover, the downward skew to medium-term inflation risks will encourage the RBNZ to stand par,” he said.
But despite that, risks remained and so the RBNZ would maintain restrictive OCR settings for as long as it took to ensure inflation settled below 3 per cent.
“It would take a large deflationary shock for the OCR to move lower before 2025,” Smith said.
