Interest rates could be higher by the middle of this year

ASB has pencilled in a 0.25% hike in December this year – the same as Westpac – and 0.50% of further hikes in the first half of next year in light of a pick-up in underlying inflation pressures revealed on Friday.

CPI inflation hit 3.1% in the fourth quarter of last year, stronger than the RBNZ expected and its key measure of core inflation – the sectoral model – ticked up to 2.8% from 2.7%.

ASB senior economist Mark Smith says the bank’s core view is underlying price pressures this year are unlikely to cool inflation to the 2% level expected by the central bank.

Having headline inflation outside of it 1-3% band will be uncomfortable for the RBNZ, Sharon Zollner, ANZ chief economist says.