New Zealand’s year-end inflation surge points to more rate hikes as a weaker currency and surging oil prices drive acceleration in the final quarter. Inflation likely eased slightly in Q3 to 3.8% year-on-year, down from 4.1% in Q2 and below the RBNZ’s early September projection. However, renewed Middle East hostilities have lifted global fuel prices, pushing NZ pump prices above April highs, while the NZ dollar is about 4% lower than the RBNZ’s Q4 assumption.
Local economists now expect Q4 inflation to accelerate to as high as 4.7%, well above the RBNZ’s 3.9% forecast and outside the 1-3% target band. This builds pressure on the RBNZ to raise the Official Cash Rate by 25 basis points to 3% at its Oct. 28 meeting, with investor pricing showing an 81% chance of a hike, up from 56% the prior week. Stephen Toplis, head of research at Bank of New Zealand in Wellington, said the RBNZ must adjust to a changed world, warning that failure to act early risks prolonged medium-term price pressure.
ASB Bank acting chief economist Kim Mundy noted September data showed broad-based, persistent pressures, forecasting inflation won’t drop below 3% until late 2027. RBNZ Chief Economist Paul Conway acknowledged upside inflation risks from oil and currency, stating rate direction is "most likely up" but the Oct. 28 decision remains "wide open.".
Source: Bloomberg Markets · Summarized by HeadlinesBriefing