All gassed up
|Consumer price inflation increased by more than expected in September, rising to an annual rate of 1.9%. That's much higher than the RBNZ was expecting, and it's likely that we'll see inflation push even higher over the next few quarters. Economic activity has also been firmer and the NZ dollar is lower. Against this backdrop, the chances of a near-term rate cut from the RBNZ have diminished. Nevertheless, interest rate hikes are still a long way off, with the Official Cash Rate set to remain on hold for some time yet.
Back in August there was a marked dovish lurch by the Reserve Bank. The RBNZ signalled that it expected to keep the Official Cash Rate at a low level for much longer than it had previously assumed. In addition, the accompanying policy statement and related media comments signalled that if activity and inflation did not firm as they expected, the OCR could be cut.
We took this signal from the RBNZ seriously, and based on economic conditions at the time we put the odds of a rate cut at one-in-three. However, we felt it was more likely that both inflation and economic activity would surprise to the upside of the RBNZ's downbeat near-term forecasts, and those conditions would prevent a cut. That is very much the way things have played out.
Looking first at inflation, the September quarter saw consumer prices rising by 0.9%, to be up 1.9% over the year. That was stronger than the 0.7% increase that we and other analysts were expecting. Importantly, it was well above the 0.4% rise that the RBNZ had factored into their August Monetary Policy Statement forecasts.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.