Headline CPI eases to 3.7% but most bank economists tip a hike
New Zealand’s annual inflation rate eased to 3.7% in the September quarter, down from 4.1% in June, according to Stats NZ. But a lift in most core inflation measures has ANZ, ASB, BNZ, and Westpac expecting the Reserve Bank of New Zealand (RBNZ) to raise the official cash rate (OCR) on 28 October, a move that could add to upward pressure on mortgage rates.
Most banks pick an increase
All four now pick a 25-basis-point increase next week. Westpac had previously expected the RBNZ to wait until December. Its senior economist Satish Ranchhod said that while the headline result matched his forecast, “under the surface, the details were more concerning”.
ANZ called the result “net hawkish”, with weaker domestic inflation more than offset by rising core measures. It said a weaker New Zealand dollar and higher oil prices would keep the RBNZ concerned about inflation risks. ASB goes further, seeing another increase in December that would take the OCR to 3.25%, with risks skewed higher.
Kiwibank was the outlier, arguing domestic prices had not risen in response to the oil shock.
“We don’t need rate hikes at the minute,” Kiwibank’s economists said, adding that if the RBNZ does move, it should take the OCR to 3% and hold.
NZIER forecasts one further OCR increase in 2027 but said renewed pressure on global oil prices could bring it forward.
Price pressures broaden
Consumer prices rose 0.7% over the quarter, and the 3.7% annual rate was below the RBNZ’s 3.9% forecast. Lower fuel prices were the biggest drag, with petrol down 6.5% on the June quarter, although still 19.1% higher than a year earlier. International airfares rose 14.3% and council rates 6.2% over the quarter, and BNZ said those two items accounted for two-thirds of the quarterly increase.
Most core measures told a different story. The 30% trimmed mean rose to 3.0% from 2.6%, the weighted median to 3.1% from 2.7%, and services inflation to 3.1%, ANZ noted.
“These annual readings are simply too high for comfort,” BNZ’s economists said. They added that the share of items rising in price was the highest since June 2023.
“Our hope is that generalised pricing pressures recede, but our fear is they do not,” ASB senior economist Mark Smith wrote.
What it means for borrowers
The banks see the September quarter’s easing as short-lived, as higher fuel prices and a weaker currency feed through. BNZ sees annual inflation rising into the mid-4% range in the December quarter, and ASB forecasts around 4.7%.
For property investors, rents remain a drag on returns, with annual rental inflation at 0.2%, the lowest since 2000, ASB said.
With most bank economists expecting further OCR increases, mortgage rates look likely to keep rising.
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