More OCR hikes loom as inflation risk tilts higher
Annual inflation hit a two-year high of 4.1% in the June quarter on a spike in fuel prices, and Westpac's economics team now warns the risks from here sit firmly to the upside for the back half of the year.
A surprise hike already on the board
The warning comes weeks after the Reserve Bank's Monetary Policy Committee delivered its own surprise. On 8 July, the RBNZ raised the official cash rate (OCR) by 25 basis points to 2.5%, a decision reached by consensus rather than a split vote. The RBNZ noted at the time that a partial reopening of the Strait of Hormuz had driven global oil prices markedly lower — even as it moved to lift the cash rate.
That backdrop makes the June quarter CPI print, released last week, more significant than usual.
Westpac senior economist Satish Ranchhod (pictured) noted the result came in "above the RBNZ's updated July forecast which anticipated 3.9% annual inflation," a gap that adds to the case for further tightening.
Core measures have so far avoided a broader spillover, but Ranchhod cautioned that "while the lack-of-a-pickup in underlying inflation in the June quarter was welcome news for the RBNZ, core inflation is not 'low'," with several measures still tracking close to 3%, above the midpoint of the RBNZ's target band.
More hikes flagged for September and December
Westpac is forecasting 25-basis-point OCR increases at both the September and December policy meetings, and Ranchhod said an additional hike in October "can't be ruled out" given ongoing energy cost pressures.
Imported inflation is also running hot, with tradables prices up 4.9% over the year on the back of higher fuel costs and a weaker New Zealand dollar.
Read the full Westpac report here.
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