More inflation tipped for NZ

The CPI will rise 1.5% in the September quarter, to reach 6.5% annually, according to forecasts from ASB senior economist Mark Smith.

While this will be a slight fall from the 7.3% in the June quarter, it is still way too high for the Reserve Bank, according to Smith.

“Core inflation rates are expected to remain sticky at close to (or at) multi-decade highs in Q3,” he wrote.

“There is also the clear risk that inflation could remain entrenched at high levels and outside the target band for longer than the Reserve Bank would be comfortable with.”

The bank is supposed to keep inflation between 1% and 3%, so Smith is forecasting another 50 point rise in November, followed by a 25 point rise early next year, bringing the OCR to a peak of 4.25%.

This would put more pressure on retail interest rates, which have just gone up in response to the last Reserve Bank hike.

Westpac senior economist Satish Ranchhod is expecting slightly higher inflation than Smith.

He thinks the quarterly rise will be 1.8%, and the annual rate will be 6.9%.

While that is a small fall from 7.3%, it is still at “multi decade highs”, driven by things like rising food prices, housing costs and local council rates.

He thinks it will prod the Reserve Bank to remain hawkish.

Ranchhod earlier predicted two more 50 point rises, before the OCR plateaus at 4.5%.

Kiwibank economist Mary Jo Vergara is forecasting 1.7% for the quarter and 6.8% for the year. She thinks the OCR will peak at 4%, lower than the level of her two rivals.

Another problem that is expected to trouble New Zealand is persistent inflation in the United States.

Figures on Friday showed prices rose 8.2% in the year to September, down from 8.3% but still higher than expected.

This is thought likely to prod the already hawkish Federal Reserve into still more interest rate hikes.

That could push the US dollar still higher as investors buy greenbacks in order to enjoy high returns in America.

And if that weighs on the value of the New Zealand dollar, then imported inflation will rise, adding to Kiwi woes.