NZ Q1 Inflation Seen at Bottom of RBNZ Target Band, Rate Hike Distant

A pedestrian walks past the main entrance to the Reserve Bank of New Zealand located in central Wellington, New Zealand. (Reuters Photo/David Gray)

By : Charlotte Greenfield | on 9:00 PM April 18, 2018
Category : International, Asia-Pacific

Wellington. New Zealand's inflation rate is expected to have sunk towards the bottom of the central bank's target range in the first quarter, with its new governor seen as all but certain to signal it will keep rates on hold for some time.

Ten economists polled by Reuters expected the consumer price index (CPI) to rise an average of 0.5 percent in the three months ending March. The figures will be released by Statistics New Zealand on Thursday (19/04) at 1045 local time (2245 Wednesday GMT).

That would result in annual inflation of just 1.1 percent, down from 1.6 percent in the previous quarter and only just within the Reserve Bank of New Zealand's (RBNZ) target range of 1 percent to 3 percent. Economists expected new RBNZ governor Adrian Orr to take a similar stance to previous incumbents, given he has inherited the tepid inflation that saw them slash rates to a record low of 1.75 percent in 2016 and signal they could stay unchanged for years.

"We suspect the RBNZ will continue to bide its time until there's a little more certainty that inflation is set to rise," ANZ economists said in a research note, adding that the bank's next monetary policy statement on May 11 would be especially closely watched. Sluggish price growth would also leave the RBNZ's refreshed mandate, which now includes a goal to maximize sustainable employment alongside its inflation target, largely an academic exercise.

Economists had thought that the addition of an employment-maximizing mandate might lead to a more dovish tolerance of inflation if it needed yet lower rates to generate job growth.

A rent spike at the start of the year combined with an annual hike in tobacco taxes was expected to drive price growth, but outside of those areas inflation has been stubbornly hard to generate.

Tertiary education costs were expected to hold back inflation thanks to a new government policy to make students' first year of study free, as would competitive pricing of international air fares, communications and electronics.

Nevertheless, most economists saw inflationary pressures rising throughout the year as businesses started to pass on wage hikes.

Thomas Helbling, the International Monetary Fund's's Australia and New Zealand mission chief, said that reaching 2 percent had challenged the RBNZ in recent years thanks to low global inflation but forecasts showed inflation picking up to the mid-point of the bank's 1 to 3 percent target band.

"Given where the economy is now, we think that will be achieved if the economy evolves as expected," said Helbling, who was visiting Wellington as part of an annual IMF review of the economy.


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