New Zealand inflation remains near a 32-year high

On Tuesday, Statistics New Zealand reported a decline in annual inflation in the second quarter from 7.3% to 7.2%. Economists' expectations were associated with a decline to 6.5%. There was an increase in consumer prices by 2.2% compared to the previous quarter, which exceeded the forecast of 1.5%.

Despite the fact that the Official Cash Rate (OCR) is being raised by the Reserve Bank of New Zealand (RBNZ) at a record speed, inflation is not expected to return to the target value of 1-3% until mid-2024. Economists expect that the RBNZ's actions will be accelerated, as it is necessary to regain price control. Further forecasts of experts are associated with an increase in rates by 75 basis points during the upcoming meetings scheduled for November and February.

Sharon Zollner, a chief economist at ANZ, believes that the current figures, lagging behind inflation more than expected, leave the Reserve Bank of New Zealand no choice. In her opinion, by February, the OCR will reach a 14-year peak, that is, up to 5%.

In the third quarter, the Reserve Bank of New Zealand predicted inflation at 6.4%. In addition, over the next two years, it was expected to gradually slow down and fall to a level of 3% by the second quarter of 2024.

To date, ASB Bank has raised its forecast maximum for the OCR from 4.25% to 5.25%, and also predicted an increase of 75 basis points in November.

According to a senior economist Mark Smith, the self-sustaining high dynamics of inflation is becoming well-established. Smith also added that the Reserve Bank of New Zealand should set a framework for the OCR and clearly focus on getting inflation bottom lines below 3%.

Kiwibank also raised its predicted maximum for the OCR from 4% to 5%.

According to James McIntyre, an economist at Bloomberg Economics, the surprisingly high inflation rate in New Zealand does not necessarily imply the continued price pressure, however, this means that in the future the RBNZ will follow a policy of aggressive tightening.

In accordance with the statement of the statistics agency, the rise in prices was widespread. For example, during the quarter, there was an increase in the price of 10 out of 11 main groups in the basket of the consumer price index. Food products, housing construction costs and international flights have grown the most significantly.