New Zealand Inflation Accelerates to Fastest in 32 Years
Annual inflation surged to 6.9% in the fourth quarter, government data showed Thursday in Wellington.
(Bloomberg) -- New Zealand inflation accelerated in the first quarter to the fastest pace in 32 years, validating the central bank’s decision to raise interest rates by half a percentage point as it pursues an aggressive tightening cycle.
Annual inflation surged to 6.9% in the fourth quarter, government data showed Thursday in Wellington. Economists forecast 7.1% and the miss saw bond yields fall, while the currency dropped as much as 0.6%, erasing about half of Wednesday’s gain.
New Zealand is at the forefront of global policy tightening as central banks respond to soaring inflation that’s threatening to become entrenched. The Reserve Bank last week delivered its biggest hike in 22 years, raising the official cash rate to 1.5%, and Governor Adrian Orr said Tuesday that further tightening is expected.
RBNZ policy makers next meet May 25 with investors pricing an 80% chance of a half-point hike to 2%, up from 75% ahead of the release.
“Crucially for the RBNZ, both households and businesses are expecting that inflation will remain strong for some time yet,” said Satish Ranchhod, senior economist at Westpac Banking Corp. in Auckland.
“If that spills over into wage and price setting decisions, the strength in inflation could be sustained for even longer. That would mean that even larger interest rate increases are needed to rein the inflation monster in.”
Annual inflation is running at the fastest since the second quarter of 1990, when it peaked at 7.6%. The RBNZ targets the midpoint of a 1-3% range over the medium term.
In February, the central bank forecast inflation would accelerate to 6.6% in early 2022 then ease back to the top of its band by mid-2023. But last week, it said the peak was likely to be “around 7%” in the first half.
What Bloomberg Economics Says
“The central bank is seeking to contain the risk that price rises in high-frequency purchase categories -- key to inflation expectations -- ignite a wage-price spiral.
-- James McIntyre, economist
To read the full note, click here
Other Details
- Prices for construction of new houses were up 3.5% for the quarter and 18.3% for the year
- Gasoline prices rose 8.8% in the quarter and 32.3% for the year
- Food prices gained 3.1% in the quarter and 6.7% for the year
- Tradables prices increased 2.4% from the previous quarter and 8.5% for the year
- Non-tradable prices, which are less influenced by the currency, rose 1.5% from the previous quarter
- Non-tradables prices rose 6% from a year earlier
- Consumer prices excluding food, fuel and energy rose 5.9% from a year earlier, up from 5.4% in the previous quarter. The RBNZ publishes its own core measure later Thursday
©2022 Bloomberg L.P.