New Zealand’s inflation hits 3-decade high, raising bets on sharper rate hikes

WELLINGTON — New Zealand’s consumer

prices rose at their fastest pace in three decades, beating

forecasts and raising the prospect of an unprecedented 75 basis

point interest rate hike at the central bank’s policy meeting

next month.

The consumer price index (CPI) increased 7.3% in the second

quarter, speeding up from a 6.9% gain in the first quarter and

the fastest since the June quarter of 1990 when prices rose

7.6%, Statistics New Zealand said in a statement on Monday.

The index rose 1.7% quarter-on-quarter, slightly slower than

the 1.8% rise in the first quarter. The inflation readings were

above economists’ expectations in a Reuters poll for a 1.5% rise

for the quarter and a 7.1% annual gain.

The New Zealand dollar shot up 0.5% and the two-year swap

rate rose 11 basis points to 4.15% after the data, on growing

expectations the central bank will again hike rates at its

August meeting.

Most economists expect the Reserve Bank of New Zealand

(RBNZ) to raise rates by 50 basis points next month but the

hotter-than-expected inflation has raised the possibility the

bank may follow global peers in delivering a supersized

hike.

“A 75 bp hike at the August (monetary policy statement) is a

very real possibility, particularly if the labor market data on

3 August delivers another hawkish surprise,” ANZ said after the

data.

The RBNZ has raised interest rates to 2.50% from a record

low 0.25% in October last year and has signaled plans to

increase the rate to 4.0% by the middle of 2023. Prior to the

inflation data, most economists had not expected the bank to go

that far.

ANZ now expects the run of 50 basis point hikes to continue

through to November, meaning a cash rate endpoint of 4.0% rather

than 3.5%.

Westpac Bank said in a note that much of the strength in

consumer prices has been due to large increases in the costs of

food, petrol and housing although it noted high inflation is

broadbased.

“Price pressures have been boiling over in every corner of

the economy,” it added.

Inflation and the impact it has had on a households in New

Zealand have become a political issue.

The government on Sunday moved to offset some of the

inflationary pressures by extending the various breaks on fuel

excise taxes, road user charges and public transport

fares.

“The growing strength in domestically generated inflation is

concerning,” said Kiwibank in a note. “It’s likely to be a slow

descent from here.”

(Reporting by Lucy Craymer; Editing by Kim Coghill and Sam

Holmes)