The Reserve Bank's economic forecasters - and one or two in the private sector – went into smug mode this afternoon after inflation figures came in rather softer than the markets were expecting.The Consumer Price Index for the December quarter was
The Reserve Bank’s economic forecasters - and one or two in the private sector – went into smug mode this afternoon after inflation figures came in rather softer than the markets were expecting.
The Consumer Price Index for the December quarter was negative (-0.2%) and 2% when annualised.
That was smack bang on what the Reserve Bank thought it would be – but lower than the average market prediction of no change. That led to a fall in the New Zealand dollar. Markets wound back previous levels which had reflected their view the Reserve Bank’s inflation outlook is too optimistic. On this scenario, the central bank would, in fact, have to lift the official cash rate well ahead of its current stance of no rises until the middle of the year.
One of the inflation hawks, TD Securities Annette BEacher, says the markets have over-reacted to this morning’s news, but that the softening of inflation figures only muddies the waters.
The figures are historical and inflationary pressures should increase as the country comes out of recession rather more quickly than anticipated, she said.
“Our call for a 0.25% increase in March to 2.75% is based on the outlook for inflation. As the economy has clearly emerged from recession, prices pressures are expected to build.”
That said, she concedes the New Zealand central bank has a history of sticking to its guns.
Governor Alan Bollard reviews the official cash rate again next Thursday morning.
Bank of New Zealand economist Craig Ebert asked “inflation? What inflation” and said the latest figure show Dr Bollard can afford to wait.
“Going into today’s CPI report, we were struggling to believe inflation was any genuine concern, but worried that some one-off factors might make the headline CPI look annoyingly sticky. It didn’t… we’re left with the impression New Zealand’s inflation is soft, at heart.”
