Lack of housing inflation tipped to keep OCR low

Wednesday 18 July 2012

Westpac’s economists say low rates of housing-related inflation in the June quarter of this year are likely to keep the official cash rate low for the foreseeable future.

By The Landlord

Statistics were released today showing a subdued increase in consumer prices in the quarter, taking the annual inflation rate down to its lowest since December 1999.

This was weaker than Westpac’s pick of a 0.6% increase, and the market median and Reserve Bank forecast of 0.5%.

Westpac’s economists said housing inflation had picked up over the past 18 months but that had not had the flow-on effect to the CPI that had been expected.

“The date at which this starts to spill over into more generalised inflation seems more distant after today’s figures. That could in turn mean further delays to interest rate hikes, although we’ll make a decision in the context of a broader review of our forecasts,” the report said.

The economists said they were revising their OCR forecast for a series of hikes beginning in March 2013 and would likely  revise that to expect them later in the year.

“That said, we doubt the RBNZ is seriously considering reducing the OCR. Although inflation is currently low, the lack of exchange rate appreciation this year and accelerating economic growth are strong indications that inflation will rise to some extent over the next couple of years. It is still too early to definitively judge how much inflation the Canterbury rebuild will eventually provoke.”

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