New Zealand inflation holds at 7.2%, near three-decade high

NEW Zealand inflation held near a three-decade high in the fourth quarter, maintaining pressure on the central bank to keep raising interest rates.

Annual inflation was 7.2 per cent, unchanged from the third quarter, Statistics New Zealand said on Wednesday (Jan 25) in Wellington. Economists expected 7.1 per cent. Consumer prices advanced 1.4 per cent from three months earlier, exceeding the 1.3 per cent median estimate.

The annual inflation rate is lower than the Reserve Bank of New Zealand’s (RBNZ) forecast of 7.5 per cent, but its failure to slow suggests further monetary tightening is required to cool demand. The RBNZ in November projected that the Official Cash Rate (OCR) would need to rise to 5.5 per cent by mid-year from 4.25 per cent now in order to get inflation back into its 1-3 per cent target band next year.

The bank’s next rate decision is on Feb 22 and investors are uncertain whether it will opt for a 75 or 50 basis-point hike.

The New Zealand dollar rose after the release of the data before giving up most of those gains. It bought 64.98 US cents at 11.16 am in Wellington.

The RBNZ has been at the forefront of global monetary tightening as central banks battle to overcome inflation stoked by surging energy prices and supply chain disruptions.

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The RBNZ has hiked the OCR by 4 percentage points since October 2021, stepping up the tempo with a jumbo 75-point increase in November as inflation expectations remained uncomfortably high.

But weak business confidence, slow consumer spending and signs of waning global inflation pressures have fuelled speculation the central bank may be able to join some of its peers in slowing the pace of rate hikes.

The RBNZ forecast inflation would be 7.5 per cent in the first quarter of 2023 before starting to recede as the economy heads into recession. It doesn’t tip inflation to be less than 3 per cent until the second half of 2024.

Price rises were widespread, the statistics agency said, with 10 of the 11 main groups in the consumers price index basket increasing in the quarter. The main drivers were housing and household utilities, food and transport, it said.

Non-tradables inflation, a closely watched indicator of domestic price pressures, held at 6.6 per cent. The RBNZ projected 7 per cent. BLOOMBERG