Big jump in inflation forecast this week

Bank economists are forecasting a further jump in inflation when Stats NZ issues its verdict on the December quarter on Wednesday.

That could leave many brokers eventually negotiating significantly higher interest rates on loans for their customers.

The ASB expects inflation to reach its highest level in 30 years.

It says a 1.6% increase in the Consumers Price Index (CPI) for the December quarter will bring annual inflation 6.1%.

That is a lot more than the current 4.9%, which is itself far higher than the Reserve Bank is supposed to tolerate.

And 6.1% will not be the last. The bank economist Mark Smith forecasts the rate to go still higher, peaking at 6.3% and remaining high until next year.

Smith is blaming “a relentless stream of price and cost rises from a multitude of domestic and external sources” for the problem, which will prompt “a more aggressive path of OCR tightening” by the Reserve Bank.

Westpac is a little more restrained, but it too sees inflation going higher. Its senior economist Satish Ranchod is forecasting a quarterly rate of 1.2%, which will make the annual rate 5.7%.

“New Zealand is in the midst of a perfect storm of inflation pressures,” Ranchod said.

“Much of this is a result of offshore factors. Disruptions to global manufacturing chains have resulted in shortages of many consumer goods and production inputs.”

Domestic pressures were adding to the problem.

“New Zealand is in the midst of a perfect storm of inflation pressures,” Ranchod said.

Like other economists, Ranchod is forecasting the OCR to be 3% by next year.

This will leave advisers forced to negotiate higher interest rates for their customers. At present, most interest rates are in the 4% to 5% range, with an OCR of 0.75%.


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