New Zealand’s September quarter inflation print, due on October 22, has become the hinge for the Reserve Bank’s next decision. Westpac expects annual inflation to fall to 3.7 percent from 4.1 percent, Kiwibank expects it to hold at 4.0 percent, ANZ puts it at 3.8 percent, and the Reserve Bank itself forecast 3.9 percent in its September Monetary Policy Statement. The official cash rate stands at 2.75 percent after a September increase from 2.50 percent, and Commerzbank notes markets assign roughly an 80 percent probability to another increase at the meeting that follows the print.
The monthly evidence points both ways. Stats NZ’s selected price indexes showed petrol prices up 6.4 percent in September and diesel up 7.8 percent, with petrol 24.3 percent higher and diesel 55.8 percent higher than a year earlier, after oil spiked again at the end of the quarter. Food prices were flat on the month and up 2.4 percent on the year, electricity was 9.5 percent higher on the year, and rents were subdued. Commerzbank’s reading of the same monthly data puts the covered basket at 5.2 percent annually in September, with inflation excluding petrol and diesel accelerating to 3.6 percent from 3.2 percent.
Against that, demand is weak. Electronic card spending fell 0.4 percent in September on Commerzbank’s account, and fell 0.7 percent excluding petrol, implying real consumption is likely negative on the year. Westpac’s preview adds the timing caveat that cuts the other way for the quarter as a whole: average fuel prices across the September quarter were lower than in the June quarter, taking an estimated 0.4 percentage points off quarterly inflation, which is why its economists call the expected annual fall a temporary reprieve and expect inflation back above 4 percent before year end.