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New Zealand’s consumer price inflation is expected to remain in the lower half of the Reserve Bank of New Zealand’s (RBNZ) target range over this year, implying no urgency to raise interest rates, according to a recent report from Westpac Research.
Inflation was more subdued than expected at the end of 2017, largely reflecting a lack of price pressures for internationally-traded goods. The Consumer Price Index rose by 0.1 percent in the December quarter, bringing the annual inflation rate down from 1.9 percent to 1.6 percent.
Today’s result reinforces the view that the need for OCR hikes is a long way off. Despite an improving global economy, inflation – particularly in terms of the manufactured goods that New Zealand imports – remains largely absent. Meanwhile, domestic inflation has picked up from its lows but is still well below pre-financial crisis levels.
"We expect annual inflation to remain below 2 percent over the course of 2018 as well. The economy is expected to continue growing, but at a modest pace that is unlikely to put it at risk of overheating. The global economy is improving, but the weakness of global inflation suggests that some spare capacity remains. In such an environment, it is hard to see the Reserve Bank coming under pressure to lift the OCR," the report added.
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