Annual inflation expected to come in below 2pc again
Oct 17, 2017
Annual inflation expected to come in below 2pc again
There could be changes ahead for the Reserve Bank, depending on the make-up of the next government. Economists expect annual inflation is still running lower than the Reserve Bank would like.
The data is due out on Tuesday.
ASB is expecting it to show an annual inflation rate of 1.8 per cent. Westpac expects 1.9 per cent and Infometrics 1.7 percent. ANZ expects 1.4 percent.
The Reserve Bank's target is to keep inflation between 1 and 3 percent on average over the medium term, with a focus on keeping future average inflation near the 2 percent target midpoint
ASB chief economist Nick Tuffley said housing and food would be the key drivers of inflation, with pressure soft elsewhere.
He said a low inflation backdrop would keep the prospect of an increase to the official cash rate on hold until early 2019 "and possibly beyond that".
"We expect the CPI to confirm that domestic inflation pressures remain subdued outside of one or two pockets and while the outlook for economic activity remains constructive and the beneficiary of a number of key supports, evidence of a firming in inflationary pressure is mixed at best.
"In such an environment, and given a number of downside risks still lurking in the background, there is plenty of sense in the Reserve Bank holding the pause button for a while longer."
ANZ said oil price weakness would keep a lid on inflation, despite stronger local factors, such as rising grocery food prices.
Depending on the outcome of the recent political negotiations, there could be changes for the Reserve Bank on the horizon.
At the moment, inflation is the bank's key consideration in setting interest rates.
New Zealand First had pledged to give the Reserve Bank a wider mandate, so that it was not only focused on inflation targets but other economic factors including the exchange rate.
That is in line with Labour's view. Infometrics chief forecaster Gareth Kiernan said he did not expect such a policy to change the inflation outlook much, were it enacted.
"The Reserve Bank is likely to still view its primary role as aiming for inflation of 2 per cent per annum, with any other targets around employment, GDP and housing likely to play second fiddle.
"It's a bit like how asset prices were added in a few years ago as things that the bank has to take notice of when setting monetary policy… they take notice of them, but consider that the most positive contribution they can make with regards to those other variables is by ensuring price stability."
At Westpac, senior economist Michael Gordon said such a move would only bring New Zealand more in line with international practice
* article sourced from stuff.co.nz - 16.10.2017
Previous Market Commentary: Singapore-listed Roxy-Pacific buys second office tower in New Zealand