Yesterday New Zealand inflation data for Q3 came in very hot:
- New Zealand Q3 CPI 2.2% q/q (vs. expected 1.4% q/q)
- Surging NZ CPI will prompt an "even more aggressive hiking cycle" from the RBNZ
- RBNZ measure of core inflation is 2.7% y/y (data delayed by tech gremlins)
From BNZ's response to the data (this published yesterday but I'm doing a bit of a catch up now). BNZ say the RBNZ is behind the curve on their rate hikes, citing CPI that has 'soared' and that the labour market is "exceptionally tight", which will add to already significant upward pressure on wage inflation.
The data is showing thus that the RBNZ needs to take a more aggressive approach.
- The combined state of the labour market and CPI inflation suggests the Reserve Bank should be increasing the cash rate 50 basis points at its November meeting.
BNZ say they are not yet formally forecasting a 50 basis point rate increase at the RBNZ's 24 November meeting but see the chances as just under 50%.
- "The overwhelming balance of risk to our forecasts is that we continue to underestimate the speed and extent of the future rate increases required to return the economy to the balance of employment and price outcomes (not to mention the housing market) that the Reserve Bank desires."
Some of the reluctance to call for a 50bp hike is due to soon-to-be RBNZ Deputy Governor Hawkesby saying a few weeks ago that 25bp hikes were more appropriate than 50bp hikes for now with uncertainty so high. It looks like this may well be up for question though.
Hawkesby will be dep gov come January: