New Zealand inflation expectations jump back above 6%, ANZ says

NEW ZEALAND inflation expectations jumped back above 6 per cent in October after consumer prices rose much faster than expected in the third quarter.

Year-ahead inflation expectations rose to 6.13 per cent from 5.98 per cent in September, ANZ Bank New Zealand said in its monthly Business Outlook published on Wednesday (Oct 26) in Wellington. They were as high as 6.23 per cent in July.

“Inflation pressures remain intense,” ANZ New Zealand senior economist Miles Workman said in the report. “Pricing intentions are gradually easing but are not yet indicating a meaningful fall in inflation.”

Inflation was 7.2 per cent in the third quarter, little changed from a 32-year high of 7.3 per cent three months earlier and much stronger than analysts had expected. Economists now expect the Reserve Bank will respond with a more aggressive stance on monetary policy, starting with a 75 basis point hike for the Official Cash Rate at the November meeting and further increases in 2023.

“Economists are out there warning that interest rates are going to keep going higher - and house prices likely lower - until the New Zealand economy goes into recession or something close to it,” Workman said.

Business expectations for the general economy over the next year fell to minus 42.7 from minus 36.7 in September, according to ANZ’s report. Company expectations of their own performance dipped slightly.

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Responses received after the strong CPI data “were understandably more pessimistic about activity and had higher inflation expectations”, Workman said. BLOOMBERG