J P Morgan economist Helen Kevans says she has pushed out the likely timing of the next OCR rate hike to December.
Previously she had forecast that the Reserve Bank would deliver two more rate 25 basis point rate hikes before year-end.
"We expected the first of these to be delivered on September 16, with a pause in October, before another 25bp move higher in the December month.
"Now, though, we believe that increasing uncertainty surrounding the outlook for the global economy, combined with a string of weaker than expected domestic data, have afforded the Reserve Bank governor (Alan Bollard) time to stand pat. Our forecast now calls for the next OCR hike to be delivered in December."
Kevans says that domestically, aside from the retail numbers, the economic data generally has disappointed. The labour market data for the June quarter, in particular, raised serious questions about the strength of the recovery underway. Wage growth remained subdued and the unemployment rate soared beyond the most pessimistic of expectations, shooting up from 6.0% to 6.8%. Though seasonal adjustment difficulties were at play in the labour market data, putting aside this unexpected volatility, the trend unemployment rate has actually remained flat at an elevated 6.7% since 3Q09.
The retail sales numbers may have been a bright spot on the economic landscape, but the spike in sales values and volumes is only temporary. Consumers are bringing forward spending, particularly on bigger ticket items, ahead of the hike to the goods and services tax (GST) on October 1. Retail sales, therefore, will continue to be strong leading into October, after which they will likely suffer a significant hangover, given a vacuum of demand and as households consolidate spending patterns.
Kevans says last week's data on inflation expectations again provided Bollard more breathing space.
While JP Morgan has put back its rate increase dates it says the current tightening cycle will run well into 2011.
It expects the OCR to be at 3.25% by the end of the year, and 4.5% by the end of 2011.
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