Inflation drops lower than predictions

The Reserve Bank may not need to raise the OCR after better than expected inflation figures.

Tuesday, October 17th 2023, 12:45PM

by Sally Lindsay

Inflation fell to 5.6% in the September quarter far exceeding the drop most economists had forecast. It is down from 6% in the June quarter.

The RBNZ had forecast inflation to be at 6% in the September quarter.

Economists at ASB and ANZ had forecast a slight uptick in the September quarter to 6.1%. Westpac had forecast a 2% quarterly rise, for an annual rate of 5.9%.

ANZ and Westpac have also forecast another OCR hike next month, but that now seems unlikely.

Westpac senior economist Satish Ranchhod says against this backdrop the chance of a further OCR rate hike from the RBNZ next month is less likely.

“The September quarter Consumer Price Index (CPI) points to a faster easing in aggregate inflation pressures than we or the RBNZ had been expecting,” he says.

“However, under the surface we see that core inflation pressures remain strong. The weakness in inflation is heavily centred on imported prices (tradables). The September quarter absorbed a one-off bounce from the end of the fuel excise, road user changes and public transport subsidies

Much of the softness in these areas reflects a continued easing in early supply disruptions offshore. Importantly non-tradables inflation remains strong and is up 6.3% over the past year and 1.7% for the quarter.”

Stats NZ says the main domestic inflation drivers in the latest quarter were milk, cheese, eggs, bread and cereals. Milk, cheese and eggs were up 11.5% year-on-year. Bread and cereals were up 11.8%.

Ranchhod says the extent to which core inflation pressures continue to ease rapidly in the December quarter and beyond will be critical in determining the likelihood and timing of rate increases next year. “Certainly, the persistence in domestic price pressures means the RBNZ won't be contemplating cuts any time soon.”

Kiwibank thinks today’s inflation figure significantly reduces the likelihood of another OCR hike.

Tags: inflation