In New Zealand, inflation rose faster than expected in the second quarter, reaching a new 32-year high, fueling speculation that the central bank will need to keep raising interest rates aggressively.
Annual inflation has accelerated to 7.3 percent from 6.9 percent in the first quarter, according to government data released Monday in Wellington. Economists predict 7.1 percent growth. Consumer prices rose 1.7 percent from three months ago, exceeding the median estimate of 1.5 percent.
Central banks around the world are rapidly raising interest rates in order to regain control of inflation, which is spiralling due to pandemic bottlenecks and the war in Ukraine. The Reserve Bank of New Zealand raised the Official Cash Rate by half a percentage point last week, bringing it to 2.5 percent, and stated that it will continue to tighten policy “at pace.”
Following the release, the New Zealand dollar rose as investors increased their bets on even more aggressive RBNZ tightening. At 12:30 a.m. in Wellington, the kiwi was worth 61.85 US cents, up from 61.53 cents earlier.
‘More Work to Do’
“The data suggest a significantly more domestically oriented inflation pulse than the RBNZ anticipated,” said Sharon Zollner, chief New Zealand economist at ANZ Bank in Auckland, who raised her forecast for the OCR on the strength of the inflation report.
“While it is our expectation that signs of softening domestic demand will become increasingly evident over the second half of this year, the RBNZ has more work to do,” she said.
Zollner now sees the RBNZ continuing to deliver half-point rate hikes at each of the three remaining meetings of the year, taking the OCR to a high point of 4% rather than the 3.5% she previously anticipated.
In May, the central bank forecast inflation would peak at 7% this year then ease back to the top of its band by late 2023. However, last week it said there was “a near-term upside risk” to inflation.
Annual inflation is running at the fastest since the second quarter of 1990, when it reached 7.6%. The RBNZ targets the midpoint of a 1-3% range over the medium term.
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