By Lucy Craymer
WELLINGTON, Oct 22 (Reuters) – New Zealand’s annual inflation slowed in the third quarter, coming in below analysts’ forecasts at 3.7%, but remained above the top end of the central bank’s target range, official data showed on Thursday, as data adds to expectations the central bank will hike rates next week.
The consumer price index (CPI) rose 0.7% in the third quarter from the second, Statistics New Zealand said.
Economists polled by Reuters had expected a 3.8% annual increase and 0.8% quarterly rise.
The Reserve Bank of New Zealand targets annual inflation between 1% and 3% over the medium term.
The New Zealand dollar dipped to $0.5692 after the data came in below forecasts.
Statistics New Zealand said the largest contributor to inflation was petrol prices, even though prices had eased since the June quarter. It noted that the cost of building houses had also increased.
Inflation has become a key battleground ahead of the close-fought November 7 general election, as voters fed up with the sluggish economy and historically high inflation look for relief and political parties offer various policy solutions.
The data, which came in lower than the central bank forecast of 3.9%, is the last top-tier data release ahead of the Reserve Bank of New Zealand’s monetary policy review next week.
The central bank has raised the cash rate twice this year to 2.75% as it tries to bring inflation back to the midpoint of its 1% to 3% target range.
The market is currently pricing in a 98% chance that the central bank will hike again next week and a 100% chance that there will be 50 basis points of hikes before the end of February.
Satish Ranchhod, senior economist at Westpac New Zealand, said while the result was lower than the central bank’s forecast, the firmness in core inflation will give the RBNZ pause for thought ahead of its policy review next week.
“Market pricing and views have coalesced around an October hike which we now suspect the MPC will see as the path of least resistance,” he said.
Annual non-tradeable inflation was 3.3% compared with 3.4% in the second quarter while tradeable inflation was at 4.3% in the third quarter.
Inflation globally is proving more persistent than expected, with economists raising price forecasts and trimming growth outlooks as central banks confront renewed energy-driven pressures. The Middle East war is amplifying the risk of stagflation – stagnant growth and high inflation – by disrupting energy supplies and shipping, lifting fuel, fertiliser and transport costs.
Economists expect inflation to pick up again in the fourth quarter as fuel prices are again on the rise.
ASB Bank is picking inflation to rise to 4.5% by the end of the year and said in a note that the 2027 inflation profile “also looks to be considerably firmer” than the central bank’s forecasts in September.
(Reporting by Lucy Craymer in Wellington; Editing by Renju Jose and Lincoln Feast.)
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