New Zealand Inflation Holds at 7.2%, Near Three-Decade High

New Zealand inflation held near a three-decade high in the fourth quarter, maintaining pressure on the central bank to keep raising interest rates.

(Bloomberg) — New Zealand inflation held near a three-decade high in the fourth quarter, maintaining pressure on the central bank to keep raising interest rates.

Annual inflation was 7.2%, unchanged from the third quarter, Statistics New Zealand said Wednesday in Wellington. Economists expected 7.1%. Consumer prices advanced 1.4% from three months earlier, exceeding the 1.3% median estimate.

The annual inflation rate is lower than the Reserve Bank’s forecast of 7.5%, but its failure to slow suggests further monetary tightening is required to cool demand. The RBNZ in November projected that the Official Cash Rate would need to rise to 5.5% by mid-year from 4.25% now in order to get inflation back into its 1-3% target band next year.

The bank’s next rate decision is on Feb. 22 and investors are uncertain whether it will opt for a 75 or 50 basis-point hike.

The New Zealand dollar rose after the release of the data before giving up most of those gains. It bought 64.98 US cents at 11:16 a.m in Wellington.

The RBNZ has been at the forefront of global monetary tightening as central banks battle to overcome inflation stoked by surging energy prices and supply chain disruptions.

The RBNZ has hiked the OCR by 4 percentage points since October 2021, stepping up the tempo with a jumbo 75-point increase in November as inflation expectations remained uncomfortably high.

But weak business confidence, slow consumer spending and signs of waning global inflation pressures have fueled speculation the central bank may be able to join some of its peers in slowing the pace of rate hikes.

The RBNZ forecast inflation would be 7.5% in the first quarter of 2023 before starting to recede as the economy heads into recession. It doesn’t tip inflation to be less than 3% until the second half of 2024.

Price rises were widespread, the statistics agency said, with 10 of the 11 main groups in the consumers price index basket increasing in the quarter. The main drivers were housing and household utilities, food and transport, it said.

Non-tradables inflation, a closely watched indicator of domestic price pressures, held at 6.6%. The RBNZ projected 7%.

Other Details

Non-tradables prices increased 1.5% in the quarter; economists expected 1.7%
- Led by house construction
Tradables prices increased 1.4% in the quarter; economists expected 0.8%
- Led by international airfares; fuel fell
- Tradables rose 8.2% from a year earlier
Prices for construction of new houses were up 2.1% for the quarter and 14.1% for the year
Gasoline prices fell 7.2% in the quarter but were up 2.4% for the year
Food prices gained 1.8% in the quarter and 10.7% for the year
Consumer prices excluding food, fuel and energy rose 6.7% from a year earlier. The RBNZ publishes its own core inflation measure later Wednesday

(Updates with details in second section)

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