Economists predict a slight easing of inflation in New Zealand for the September quarter, but concerns remain high due to rising fuel prices and a weak currency. The Consumer Price Index (CPI), set to be released next Thursday, is expected to show annual inflation softening to between 3.7% and 4.0%, down from 4.1% in the June quarter. However, experts warn that this reprieve may be temporary, with fuel prices driven by Middle East conflicts and a declining New Zealand dollar likely to push inflation higher in the December quarter and beyond.
Bank economists have adjusted their projections ahead of the CPI release, with BNZ forecasting 3.9%, ANZ at 3.8%, Westpac at 3.7%, and Kiwibank at 4.0%. The Reserve Bank of New Zealand (RBNZ) had previously lowered its CPI expectations for the September and December quarters to 3.9%, but recent data suggests inflation could exceed these projections. The RBNZ's next Official Cash Rate (OCR) review is scheduled for October 28, and economists believe a rate hike remains 'firmly' on the table.
Kiwibank economist Alexandra Turcu noted that while fuel prices eased slightly in the September quarter, they spiked again at the end of the month, impacting household budgets. 'We hoped that June would see the peak in the conflict and therefore a peak in prices. That is no longer likely,' she said. BNZ senior economist Doug Steel echoed these concerns, stating that the future outlook is more troubling than the current data. 'Annual inflation of 3.9% in the third quarter would be an easing from the second quarter’s 4.1%. This looks like a head fake lower,' he said.
Westpac NZ senior economist Satish Ranchhod warned that the temporary softening in inflation is likely to be short-lived, with fuel costs and a weaker currency set to drive inflation back above 4% by the end of the year. The RBNZ will be closely monitoring the underlying details of the CPI data, particularly signs that high fuel prices are affecting other sectors. As conditions change rapidly, next week's CPI data may already feel outdated, highlighting the volatility of the current economic environment.