Seeing both sides

By Greg Smith, Head of Retail at Devon Funds

Needless to say, inflation has been front and centre of financial markets once again recently. The quarterly inflation print in NZ delivered a shock on the upside, coming in at 7.2%. This was down on the 7.3% in the June quarter, and while expectations were divergent, almost all expected a ‘6’ out front as opposed to a ‘7’. The market wasn’t exactly at “sixes and sevens” over the release - on the day the NZX50 underperformed many other global indices due to the much hotter than expected inflation print.

The market is now pricing in an 85% probability of a 75-basis point rate rise at the next RBNZ meet, with an even chance of a similar move in February. Forecasts for the terminal rate for the OCR (the max it will get to next year) have been lifted to 5.3%. The CPI rose 2.2% last quarter against the June quarter, driven by the food and housing group. Vegetable prices have risen the most on record. Petrol prices are falling, but tradeable (imported) inflation came in at 8.1%. This was lower than the 8.7% in June but was expected to fall further. Food for thought for the RBNZ.