WELLINGTON: New Zealand’s inflation rate is expected to have picked up in the third quarter, slightly exceeding central bank forecasts, but that is unlikely to alter the bank’s resolution to keep interest rates on hold, possibly for years. Ten economists polled by Reuters expected the consumer price index (CPI) to rise an average of 0.4 percent in the third quarter from the previous three-month period. The figures will released by Statistics New Zealand on Tuesday. The expected boost was largely on the back of climbing food prices, with wet weather curbing local production and imported food costs rising. Fuel prices, which had fallen by less than expected as global oil markets stabilised, were also behind the more robust price growth than predicted by the RBNZ in August. Outside of these factors, economists warned inflationary pressures remained relatively weak. “We expect the CPI to confirm that domestic inflation pressures remain subdued outside of one or two pockets… evidence of a firming in inflationary pressure is mixed at best,” said ASB economists in a research note. That means the results are likely to have little sway on the RBNZ, which has signalled it will keep interest rates at a record low of 1.75 percent until the end of 2019, to underpin the recovery in previously tepid inflation.
“The RBNZ remains cautious and watchful,” said Philip Borkin, economist at ANZ. “The hurdle for action remains high, and policy looks set to be on hold for an extended period.” The bank will make its next monetary policy decision on Nov. 9, when it will also have to consider any fallout from an inconclusive general election on Sept. 23. The vote left the small, nationalist New Zealand First Party, holding the balance of power with a decision on whether it would support incumbent National or centre-left Labour likely this week. Labour wants to add employment to the RBNZ’s mandate, which could see the bank veer away from a strict focus on inflation targeting and adopt a more dovish policy. That goal is shared by NZ First, which also wants to broaden the RBNZ’s focus to include greater management of the local dollar’s value against other currencies.
