RBNZ cries wolf – Kiwibank

The survey asks business leaders and forecasters where inflation is headed and the RBNZ puts a lot of emphasis on inflation expectations as a guide to price setting behaviour.

Kiwibank chief economist Jarrod Kerr, who disagrees with calls the RBNZ will raise the OCR, says history shows that expectations of inflation follow actual inflation and can be self-reinforcing.

“The good news is actual inflation has fallen from a peak of 7.3% to 4.7%, with broad consensus it will continue to fall into next year. Surveyed expectations should also fall. Expectations of where inflation is likely to print over two years should fall closer to 2.5%, currently 2.76%, and down from a recent high of 3.62%. Still a way from the 2% target midpoint of the RBNZ. But a move in the right direction.”

The pricing in of another OCR rise came after the ANZ’s recent call that the RBNZ would lift the OCR by 25bps this month and again in April, bringing it to 6%. “We just don’t think the RBNZ committee will feel confident it has done enough to meet its inflation mandate”, ANZ economists said.