New Zealand inflation outlook builds case for further rate hikes
Price pressures in New Zealand are expected to ease slightly in the third quarter before strengthening again toward year-end. The expected rebound, driven by a weaker currency and higher oil prices, is adding to the case for additional interest rate increases.
Highlights
- Economists forecast New Zealand CPI will rise 3.8% year-over-year in Q3, down from 4.1% in Q2 and below the Reserve Bank's projection.
- Weaker New Zealand dollar and rising oil prices are expected to lift inflation by year-end, reversing the third-quarter slowdown.
- Renewed inflation pressures increase the likelihood of further Reserve Bank rate hikes as controlling price growth becomes more challenging.
Third-quarter inflation estimate and year-end rebound
As reported by Bloomberg, economists expect New Zealand's consumer price index to rise 3.8% in the third quarter from a year earlier, based on the median estimate in a survey of 16 analysts. That would mark a slowdown from 4.1% in the second quarter and come in slightly below the Reserve Bank's projection from its early September monetary policy statement.The moderation is likely to prove temporary. A weaker New Zealand dollar and surging oil prices are set to push inflation higher in the final three months of the year, reversing the third-quarter respite.
Implications for monetary policy
The expected pickup in inflation at the end of the year strengthens the argument for further rate hikes in New Zealand. With price pressures showing signs of reaccelerating, the Reserve Bank faces a more difficult path in bringing inflation under control.The inflation report due Thursday is therefore likely to be closely watched for how far price growth is easing now, and how much risk remains that imported cost pressures feed into the broader economy later in the year.
In our earlier article, we covered a broad sell-off in U.S. tech and AI-linked stocks as oil prices climbed to around $110 a barrel, reviving inflation worries. We noted that the jump in energy costs could complicate the Fed’s policy path by keeping pricing pressures elevated and financing conditions tighter, even as investors reassess stretched valuations across the sector.
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