Inflation is expected to hit a 15-month high, as strong food prices, rates, power and transport costs continue to squeeze household budgets.
Consumer prices for the three months ended September are expected to have risen about 1.0%, pushing the annual rate to 3.0% from 2.7% in June.
ANZ senior economist Miles Workman has a top-of-the-range forecast of a 1.1% quarterly rise and 3.1% annual rate, which he said would reflect familiar drivers.
“The housing and household utilities group is expected to contribute… with local council rates and electricity adding… fruit and vegetables and meat a little stronger than usual seasonality would imply.”
Smaller contributions were expected from transport costs, which included ACC levy rises and volatile fuel prices, and airfares.
“Accelerating tradable inflation — the more volatile side of the CPI — is expected to push headline inflation higher,” Workman said.
Tradable inflation reflects overseas price moves, such as fuel, exports and imports, and the effect of the currency. Non-tradable is the domestic side of the economy such as rates, insurance, local services.
In recent quarters, domestic inflation has slowed, while ‘imported’ inflation has edged higher.
Cost of living soars
ASB senior economist Mark Smith said headline inflation might be below Covid highs of more than seven percent, but cost-of-living pressures weighed on households.
“In our view, this is the largest single headwind facing the household sector,” he said. “We have seen a cumulative increase in household costs of around 25% since the end of 2019.
“Increases are somewhat larger for key necessities like food and housing. Little wonder households feel under the pump.”
The prevailing view of economists and the Reserve Bank is that the spike in headline inflation will be short-lived.
“For now, we think the risk is low that this bout of high inflation will persist, because there is significant spare capacity still sloshing in the economy, keeping downward pressure on medium-term inflation,” Kiwibank senior economist Mary Jo Vergara said.
RBNZ not spooked
Workman expected the central bank to take any spike in its stride.
“They are unlikely get too spooked by inflation breaching the target band, provided the core measures remain contained and non-tradable inflation continues to slow.”
He said the RBNZ would dissect the numbers to focus on underlying inflation pressures, which looked through volatile food, energy and fuel prices for instance.
ASB’s Smith said the economy was still struggling and needed further help from another cut to the Official Cash Rate.
“With few economic tailwinds around, more policy support is needed to get the economy moving at an above-trend pace, so as to ensure medium-term inflation settles around the inflation target midpoint.”
In line with the RBNZ’s recent signals, Smith picked at least one more 25-basis-point cut to 2.25% and possibly lower.
By Gyles Beckford of rnz.co.nz
