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Inflation to "force" OCR hike

The impact of rising petrol prices is likely to extend beyond the petrol pump, according to Kiwibank economists, who say inflation will force the Reserve Bank to lift the OCR six months ahead of schedule.

Tuesday, October 16th 2018, 2:48PM

Jeremy Couchman, Kiwibank Senior Economist

It comes as September inflation figures showed a stronger-than expected 0.9% quarter on quarter increase, taking annual inflation up to 1.9% -- just below the Reserve Bank's 2% target mid-point. Rising inflation and GDP growth are needed before the central bank considers a hike. 

Jeremy Couchman, said rapidly increasing inflation, driven by house price increases and the 20% year on year increase in petrol prices (which contributed to 40% of the annual inflation gain) would leave the Reserve Bank in an "awkward position". 

The economist said the Reserve Bank's view that inflation would "gradually" rise to the target mid point was "increasingly untenable". Couchman added: "For now at least, the RBNZ can still claim that much of the recent rise in inflation pressure is coming from cost-push inflation factors that can be looked through."

Couchman said inflation was "on the charge", and predicted "momentum is likely to build". He said this would ultimately force the central bank to move forward its timeline on lifting the OCR: "We see GDP growth picking up above trend into 2019, and inflation is likely to accelerate. We believe that ultimately the RBNZ will be forced to begin gradually hiking the OCR sooner than is currently signalled. We believe the RBNZ will be able to hike by May 2020, 6 months ahead of their schedule."

The views were largely echoed by Westpac's Michael Gordon, who said imported and domestic inflation figures were "picking up gradually" and the lower Kiwi dollar also had an effect on rising prices. 

Gordon said the odds of a rate cut had fallen following the inflation data: "The RBNZ has warned that if the data failed to support a pickup in inflation, it would reduce the OCR. We took that seriously at the time, but our central view was that a range of more positive data would most likely dissuade the RBNZ from cutting. That is the way things are panning out. The odds of a rate cut over the coming year, which we initially put at one in three, are receding."

The bullish views on the OCR come despite the Reserve Bank's claims the next move could be "up or down". The dovish language used by the bank in its last MPS announcement led some economists, including those at ANZ, to predict a cut before a hike. ANZ expects the Reserve Bank to "look through" inflation data and focus on global market volatility at its next MPS announcement, due in November.

 

Tags: ANZ Kiwibank OCR OCR forecasts Westpac

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Lender Flt 1yr 2yr 3yr
AIA - Back My Build 5.94 - - -
AIA - Go Home Loans 8.49 ▼6.19 ▼5.69 ▼5.69
ANZ ▼7.89 6.79 6.29 6.29
ANZ Blueprint to Build 7.39 - - -
ANZ Good Energy - - - 1.00
ANZ Special - 6.19 5.69 5.69
ASB Bank 8.39 ▼6.19 ▼5.69 ▼5.69
ASB Better Homes Top Up - - - 1.00
Avanti Finance 8.90 - - -
Basecorp Finance 9.60 - - -
BNZ - Classic - 6.19 5.79 5.79
Lender Flt 1yr 2yr 3yr
BNZ - Mortgage One ▼7.94 - - -
BNZ - Rapid Repay ▼7.94 - - -
BNZ - Std ▼7.94 6.45 5.89 5.79
BNZ - TotalMoney ▼7.94 - - -
CFML 321 Loans 6.70 - - -
CFML Home Loans 6.95 - - -
CFML Prime Loans 8.75 - - -
CFML Standard Loans 9.70 - - -
China Construction Bank - 7.09 6.75 6.49
China Construction Bank Special - - - -
Co-operative Bank - First Home Special - ▼5.99 - -
Lender Flt 1yr 2yr 3yr
Co-operative Bank - Owner Occ 8.15 ▼6.19 ▼5.75 5.69
Co-operative Bank - Standard 8.15 ▼6.69 ▼6.25 6.19
Credit Union Auckland 7.70 - - -
First Credit Union Special - 6.60 6.10 -
First Credit Union Standard 8.50 7.20 6.70 -
Heartland Bank - Online 7.99 6.69 6.35 6.15
Heartland Bank - Reverse Mortgage - - - -
Heretaunga Building Society 8.90 7.00 6.50 -
ICBC 7.49 6.15 5.69 5.69
Kainga Ora 8.39 7.05 6.59 6.49
Kainga Ora - First Home Buyer Special - - - -
Lender Flt 1yr 2yr 3yr
Kiwibank 8.25 7.19 6.69 6.59
Kiwibank - Offset 8.25 - - -
Kiwibank Special - 6.29 5.79 5.79
Liberty 8.59 8.69 8.79 8.94
Nelson Building Society 8.75 6.69 6.19 -
Pepper Money Advantage 10.49 - - -
Pepper Money Easy 8.69 - - -
Pepper Money Essential 8.29 - - -
SBS Bank 8.49 ▼6.95 ▼6.29 ▼6.29
SBS Bank Special - ▼6.35 ▼5.69 ▼5.69
SBS Construction lending for FHB - - - -
Lender Flt 1yr 2yr 3yr
SBS FirstHome Combo 5.94 5.45 - -
SBS FirstHome Combo - - - -
SBS Unwind reverse equity 9.95 - - -
TSB Bank 9.19 7.09 6.59 6.59
TSB Special 8.39 6.29 5.79 5.79
Unity 8.64 6.29 5.79 -
Unity First Home Buyer special - 6.20 - -
Wairarapa Building Society 8.50 ▼6.50 ▼5.89 -
Westpac 8.39 6.89 6.39 6.39
Westpac Choices Everyday 8.49 - - -
Westpac Offset 8.39 - - -
Lender Flt 1yr 2yr 3yr
Westpac Special - 6.29 5.79 5.79
Median 8.39 6.47 6.10 5.79

Last updated: 11 October 2024 9:33am

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