New Zealand Inflation Expectations Rise Amid Rate Cut Speculation
Inflation expectations in New Zealand have edged upward, influenced by what some analysts are calling a Trump bump.
Despite this increase, expectations remain within the Reserve Bank of New Zealand’s (RBNZ) target band of 1 to 3 percent.
The RBNZ’s latest survey of expectations, which included responses from 41 business leaders and professional forecasters, showed the closely watched two-year-ahead inflation expectations rising from 2.06 percent to 2.29 percent.
Economists Weigh In
Despite the uptick in inflation expectations, opinions are divided on the implications for monetary policy. Asb, such as, maintains its forecast for a near-term interest rate cut.
Asb senior economist Mark Smith acknowledged that the RBNZ would be somewhat wary
given recent increases in inflation and concerns about tariffs potentially leading to higher consumer prices.Though, he stated that the survey did not alter Asb’s expectation of a 25 basis point cut to the official cash rate (OCR) later this month.
We still expect a 25bp OCR cut later this month and a 2.75 percent OCR endpoint, but this is conditional on the expected mid-2025 lift in inflation proving to be transitory.Mark Smith, Asb Senior Economist
Smith also cautioned, The risk is that concerns over inflation see the RBNZ pare back monetary policy easing.
Westpac’s Viewpoint
Westpac senior economist Satish Ranchhod offered a similar assessment, noting that inflation expectations are well within the RBNZ’s comfort zone.
Though, he also highlighted potential risks.
Even so,today’s data is a timely reminder of the lingering upside risks for inflation.Satish Ranchhod, Westpac Senior Economist
Ranchhod pointed out that the rise in the usually stable 2-year ahead measure was large compared to history.
He also noted that recent data from Stats NZ indicated continued firm price pressures for items like food, transport and electricity, and also a worrying surge in coffee prices.
Key Takeaways
- Inflation expectations have risen, influenced by global economic factors.
- The RBNZ’s survey shows a notable increase in two-year-ahead inflation expectations.
- Economists hold differing views on the implications for future interest rate decisions.
- Upside risks to inflation remain a concern, notably regarding food, transport, and energy prices.
