(Bloomberg) — New Zealand’s inflation accelerated to the fastest pace in more than 31 years, reinforcing bets that the nation’s central bank will remain one of the leaders of the global tightening cycle.
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Annual inflation surged to 5.9% in the final three months of 2021 from 4.9% in the prior period, Statistics New Zealand said Thursday in Wellington. That was the fastest pace since 1990, shortly after the Reserve Bank began targeting inflation to try to contain an outbreak from the previous decade.
The result cements expectations the RBNZ — which aims to keep inflation around the midpoint of its 1-3% band — will raise the official cash rate for the third time in five months at its Feb. 23 meeting. Policy makers are grappling with rising prices, a tight labor market and supply-chain snarls, similar factors that prompted the Federal Reserve overnight to flag rate liftoff in March.
“Inflation pressures are broad based, boosted by a potent cocktail of strong demand and rising cost pressures,” said Satish Ranchhod, senior economist at Westpac Banking Corp. in Auckland.
“Strong domestic demand means that price pressures could remain elevated even when the current overseas supply disruptions ease. This reinforces our expectation for a series of OCR hikes over the coming year,” he said.
The New Zealand dollar was little changed after the report, with markets reacting to the Fed announcement before the release of the local inflation gauge.
A quarter-point hike by the RBNZ to 1% is fully priced in by investors. In November, the central bank projected inflation would reach 5.7% in the quarter, but then ease to 3.3% by the end of 2022 as sharp rises in fuel prices drop out of the annual calculation.
What Bloomberg Economics Says
“Potential supply-chain disruptions from the spread of the omicron variant could see inflation remain elevated in the short-term, supporting further hikes from hawkish central banks like the RBNZ in 1H 2022.”
— James McIntyre, economist.
Read full note here.
Price rises were widespread, with 10 of the 11 main groups in the consumers price index basket increasing in the fourth quarter. The main drivers were housing-related costs, such as construction of new homes, fuel and new cars, the statistics agency said.
(Updates with economist’s comment in fourth paragraph)
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