NZ Inflation hits 7.2%

AFR

New Zealand’s central bank has been vindicated for its rapid interest rate rises after the economy’s consumer price index was hotter than expected last quarter, sustaining annual inflation at 7.2 per cent.

The September-quarter CPI rose 2.2 per cent quarter-on-quarter, according to Statistics New Zealand on Tuesday. A 17 per cent increase in the price of fruits and vegetables was behind the surprise.

Economists had expected quarter-on-quarter growth of 1.5 per cent, slowing from 1.7 per cent in the June quarter survey, and year-on-year growth of 6.6 per cent, slowing from 7.3 per cent.

The Reserve Bank of New Zealand raised the NZ cash rate half a percentage point this month, declining to moderate the pace of interest rate increases as global growth fears and recession risks mounted. Its cash rate is 3.5 per cent.

A New Zealand inflation surprise was an important factor in the dismantling of the Reserve Bank of Australia’s forward guidance one year ago.

After the NZ September-quarter CPI shot up 2.2 per cent and annual inflation a higher-than-expected 4.9 per cent, markets brought forward the timing of their projections for lift-off.

At that point, the Reserve Bank was still insisting that Australia’s official cash rate would not rise before 2024.

It was not until February this year that RBA governor Philip Lowe signalled a major rethink in the central bank’s policy bias, conceding the cash rate could rise this year.

That happened in May, amid the federal election, when the cash rate went to 0.35 per cent from 0.1 per cent. It currently sits at 2.6 per cent.

Australia’s September-quarter consumer price index data is due on October 26. The June quarter headline CPI rose 6.1 per cent and the July monthly CPI indicator rose 7 per cent.

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