Inflation genie out of the bottle

Some experts think inflation could rise even higher than it has in the September quarter,

Statistics NZ has revealed the  Consumers Price Index (CPI) soared to 4.9% for the year to September.

This annual rise was driven by a big 2.2% rise in the quarterly CPI, from July to September, which accentuated the impact of lower rises for the preceding quarters.

This is the highest rise in the annual CPI since June 2011, and the highest quarterly rise without any impact from GST since 1987. 

But the ASB is forecasting inflation rising higher still, going from 4.9% to surpass 5% by the end of the year.

Further, the number could stay high well into 2022. 

It adds the Reserve Bank will be worried about what it calls a 'broadening front' in inflation. 

This is an apparent reference to the fact that prices increased in 10 out of the 11 categories of goods and services measured by Stats NZ in its assessment of inflation.

ASB adds the bank will persist with 25 basis point hikes in the base interest rate well into next year, stopping only at 1.5%.

Westpac said the rise in inflation stemmed from supply problems, due to disruptions of global manufacturing and distribution,

This has been well established as serious impact of the Covid crisis. 

Westpac also blamed rising international oil prices and strong local demand.

The bank added the outlook was not good either, with inflation likely to stay above the Reserve Bank's target range for much of the coming year.

As a result, there would be more rate hikes from the Reserve Bank.

Earlier comment from Kiwibank indicated a 1.5% base rate would leave most retail interest rates hovering between 4% and 6%.

That would put a lot of pressure on people who have bought a first home recently, and the latest CPI numbers will make this fate far more likely.

The CPI number has turned out to be far higher than was expected by most forecasters, who were predicting a number over four but not by such a big margin. 

Stats NZ has commented that while it is always ultra careful with its numbers, the far high figure this time around impelled it to double and triple check all its data just to be sure.