ANZ and ASB forecast inflation will remain stuck at 7.2%

Sunday, 16 April 2023

Reserve Bank deputy governor Christian Hawkesby discusses inflation in February.

The country’s biggest bank is forecasting annual inflation will come in unchanged at 7.2% when Stats NZ reports consumer prices for the March quarter on Thursday.

ANZ made the prediction after Stats NZ reported on Monday morning that grocery food prices rose by 14% over the year to March.

Senior economist Miles Workman expected non-tradable inflation, which represents the change in price of goods and services whose prices are largely determined locally, would accelerate from 6.6% in the December quarter to reach 6.8%, while imported inflation would slow from 8.2% to 7.4%.

ASB also forecast on Monday that inflation would be unchanged at 7.2%, with price rises entrenched, particularly in the services sector.

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The Reserve Bank and an experimental tool developed by Massey University both suggest inflation will fail to improve.

A drop in inflation doesn’t appear beyond hope if New Zealand follows the trend overseas, but the impact of Cyclone Gabrielle that saw some consumers having to rush out to replace flood-damaged household items could prove a wildcard.

BNZ and Kiwibank are forecasting inflation will ease back very slightly to 7.1%, while Westpac is tipping a more material drop to 6.9%.

The Reserve Bank forecast when it released its last monetary policy statement in February that the annual rise in consumer prices would inch up to 7.3%, from 7.2% in the December quarter, before retreating sharply to 6.6% in the June quarter.

Massey University’s tool is also tipping inflation will come in at about 7.3%.

Its tool processes information that includes eftpos transaction volumes, freight movements at Auckland and Tauranga’s ports and on KiwiRail, and Trade Me activity.

It then uses a machine-learning algorithm to extrapolate out the likely movement in the broader Consumer Price Index based on the previous correlations in the two sets of data over the past 12 years.

An annual rise in the Consumer Price Index of 5.4% is already effectively baked-in from price rises in the nine months to the end of December, with a 1.8% increase in the March 2022 quarter about to drop out of the annual index this time around.

The vast majority of countries that have already reported their March-quarter inflation figures have reported inflation being in decline.

Annual inflation in the United States dropped to 5.8% from 7.1% in the December quarter, with inflation in Germany falling from 8.8% to 8.2%.