New Zealand inflation stays at 3.1%, fueling rate hike bets
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[WELLINGTON] New Zealand’s annual inflation rate was unchanged at 3.1 per cent in the first quarter, defying expectations for a slowdown and increasing the likelihood of further rate hikes this year. The inflation rate remained above the central bank’s target range.
The consumer price index rose 0.9 per cent in the first quarter from the previous quarter, Statistics New Zealand said. Economists polled by Reuters had expected a 0.8 per cent quarterly rise and a 2.9 per cent annual increase.
The Reserve Bank of New Zealand targets annual inflation of between 1 per cent and 3 per cent over the medium term. The New Zealand dollar rose 0.4 per cent to US$0.5916 and two-year swap rates jumped 5 basis points to 3.3951 per cent after the CPI figures beat forecasts.
New Zealand interest rate swaps now imply a 42 per cent probability that the RBNZ will have to lift its current 2.25 per cent cash rate by a quarter-point in May, compared with less than 30 per cent a day earlier.
“For the Monetary Policy Committee, today’s stronger starting point for headline inflation and zero progress on non-tradable inflation won’t be welcome, particularly in an environment when inflation expectations are threatening to drift meaningfully higher,” said ANZ senior economist Miles Workman in a note.
However, he added that headline inflation numbers were never going to drive policy decisions and the focus remains on inflation persistence and this data shows “very little new insight on that front.”
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The RBNZ earlier this month forecast annual inflation at 3 per cent for the quarter, before it rises to 4.2 per cent in the June quarter as the jump in oil prices due to the war in the Middle East flows into New Zealand pricing.
Having held the cash rate at 2.25 per cent since December, the central bank in April signalled it will act decisively if inflation heats up. It has also warned that the conflict will stoke inflation and sap growth.
Statistics New Zealand attributed the change in annual inflation to electricity, which was up 12.5 per cent.
“Higher electricity prices accounted for more than a tenth of the 3.1 per cent annual increase,” Statistics New Zealand spokesperson Nicola Growden said.
“It is the third quarter that electricity was the largest upwards contributor to the annual inflation rate,” she added.
Earlier on Tuesday, the New Zealand Institute of Economic Research released its quarterly business survey, which indicated that even though fuel prices have risen inflation pressures remain contained. REUTERS
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