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High inflation likely to lead to another 50bp OCR hike

Mixed views on inflation forecasts; but many agree another 50 basis point OCR hike is to come.

Friday, April 22nd 2022, 12:36PM

by Eric Frykberg

The cost of filling the grocery trolley will continue to rise fast for the rest of the year, according to most economists.

They only disagree on the degree of change.

Their comments follow Stats NZ's release of the March quarter price growth number at 1.8%.

That put annual growth of the Consumers Price Index (CPI) at 6.9%, which was the highest rate for 30 years.

Although it was marginally short predictions of more than 7%, it is still more than double the Reserve Bank's supposed maximum, and will add to a chorus of protest that the cost of living is becoming way too expensive for many families.

Despite that, Westpac economists see a chink of light in the gloom.

“Inflation will remain elevated for some time yet,” they wrote.

“However, it’s looking likely that the March quarter will prove to be the peak in the current inflation upswing.”

They argued some cost pressures, such as a doubling in international oil prices, had already been passed through into output prices.

And while some price rises in the quarter were very large, such as food at 3.1% and construction at 3.5%, other items such as appliances rose less than expected.

However this small crumb of comfort was not enough to change their forecast of a 50bp rise in the OCR in May.

And the principal economist at Infometrics, Brad Olsen, does not offer even the small ray of hope that Westpac does.

He thinks there is still some more inflation to come, and yesterday's rate could have been higher but for a Government wave of the wand.

“Part of the reason why yesterday's rate wasn't seven-point-something was that the Government artificially lowered that number by borrowing $350 million a quarter for fuel tax relief,” Olsen said.

“The worry is that if the Government does (remove that tax relief) then you could see inflation go higher.”

And Olsen had some information from the horse's mouth, and it wasn't good news.

“The conversations we continue to have with businesses indicate that there are more rises to come.”

More important, Olsen added, was that he did not expect to see inflation come down very quickly.

However, firm action by the Reserve Bank could reduce this pressure, and he too is forecasting a 50bps rise in the OCR in May.

ASB is also forecasting another 50 point jump in the OCR.

It says inflation might slip below its current 6.9%, but will remain over 5% for all of this year.

The bank's senior economist Mark Smith notes the rise in the CPI was slightly less than forecast, and he credits a slightly lower than expected rise in tradeable prices for that result.

“But this should reverse in the coming quarters as New Zealand opens up,” he said.

Smith said both annual tradable and non-tradable inflation hit multi-decade highs and showed how broad based the inflationary pressures were.

“The multifaceted sources of price increases continue to highlight the risk of high inflation outcomes proving to be persistent” said Smith.

Tags: OCR

« Inflation hits 30-year highHigh inflation adds to advisers' challenges »

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Lender Flt 1yr 2yr 3yr
AIA - Back My Build 6.19 - - -
AIA - Go Home Loans 8.74 7.24 6.79 6.65
ANZ 8.64 7.84 7.39 7.25
ANZ Blueprint to Build 7.39 - - -
ANZ Good Energy - - - 1.00
ANZ Special - 7.24 6.79 6.65
ASB Bank 8.64 7.24 6.79 6.65
ASB Better Homes Top Up - - - 1.00
Avanti Finance 9.15 - - -
Basecorp Finance 9.60 - - -
Bluestone 9.24 - - -
Lender Flt 1yr 2yr 3yr
BNZ - Classic - 7.24 6.79 6.65
BNZ - Green Home Loan top-ups - - - 1.00
BNZ - Mortgage One 8.69 - - -
BNZ - Rapid Repay 8.69 - - -
BNZ - Std, FlyBuys 8.69 7.84 7.39 7.25
BNZ - TotalMoney 8.69 - - -
CFML Loans 9.45 - - -
China Construction Bank - 7.09 6.75 6.49
China Construction Bank Special - - - -
Co-operative Bank - First Home Special - 7.04 - -
Co-operative Bank - Owner Occ 8.40 7.24 6.79 6.65
Lender Flt 1yr 2yr 3yr
Co-operative Bank - Standard 8.40 7.74 7.29 7.15
Credit Union Auckland 7.70 - - -
First Credit Union Special - 7.45 7.35 -
First Credit Union Standard 8.50 7.99 7.85 -
Heartland Bank - Online 7.99 6.69 6.45 6.19
Heartland Bank - Reverse Mortgage - - - -
Heretaunga Building Society 8.90 7.60 7.40 -
HSBC Premier 8.59 - - -
HSBC Premier LVR > 80% - - - -
HSBC Special - - - -
ICBC 7.85 7.05 6.75 6.59
Lender Flt 1yr 2yr 3yr
Kainga Ora 8.64 7.79 7.39 7.25
Kainga Ora - First Home Buyer Special - - - -
Kiwibank 8.50 8.25 7.79 7.55
Kiwibank - Offset 8.50 - - -
Kiwibank Special - 7.25 6.79 6.65
Liberty 8.59 8.69 8.79 8.94
Nelson Building Society 9.00 7.75 7.35 -
Pepper Money Advantage 10.49 - - -
Pepper Money Easy 8.69 - - -
Pepper Money Essential 8.29 - - -
Resimac - LVR < 80% 8.84 ▼8.09 ▼7.59 ▼7.29
Lender Flt 1yr 2yr 3yr
Resimac - LVR < 90% 9.84 ▼9.09 ▼8.59 ▼8.29
Resimac - Specialist Clear (Alt Doc) - - 8.99 -
Resimac - Specialist Clear (Full Doc) - - 9.49 -
SBS Bank 8.74 7.84 7.45 7.25
SBS Bank Special - 7.24 6.85 6.65
SBS Construction lending for FHB - - - -
SBS FirstHome Combo 6.19 6.74 - -
SBS FirstHome Combo - - - -
SBS Unwind reverse equity 9.95 - - -
Select Home Loans 9.24 - - -
TSB Bank 9.44 8.04 7.55 7.45
Lender Flt 1yr 2yr 3yr
TSB Special 8.64 7.24 6.75 6.65
Unity 8.64 6.99 6.79 -
Unity First Home Buyer special - - 6.45 -
Wairarapa Building Society 8.60 6.95 6.85 -
Westpac 8.64 7.89 7.49 7.25
Westpac Choices Everyday 8.74 - - -
Westpac Offset 8.64 - - -
Westpac Special - 7.29 6.89 6.65
Median 8.64 7.29 7.32 6.65

Last updated: 28 March 2024 9:42am

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