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New Zealand’s consumer price-led inflation index (CPI) for the month of September is expected to rise 0.7 percent during the September quarter, taking annual inflation up to 1.7 percent. Higher fuel prices account for much of the expected quarterly rise, and are likely to push annual inflation higher again in the near term, according to the latest report from Westpac Research.
Inflation is shaping up to rise above the midpoint of the Reserve Bank’s target range, for at least a short period. A petrol-induced rise in inflation could make OCR cuts a harder sell in the near term, though it certainly wouldn’t preclude rate cuts if the economy faltered.
Rising fuel prices are a mixed bag for monetary policy, adding to inflation up front, but weighing on activity over the medium term. Higher inflation caused by petrol prices certainly wouldn’t prevent the RBNZ from cutting the OCR if there were signs that the economy were faltering.
"We also expect the lower exchange rate over the last year to have an impact on prices of imported goods. But in the near term, it could make it harder to sell the idea that OCR cuts are needed for the purpose of generating more inflation," the report commented.
