A hike in the official cash rate is possible next week
after inflation rose faster than expected in the three months
The Reserve Bank meets next week to issue its OCR decision
with earlier expectations being the first rate rise to come
However, ANZ chief economist Cameron Bagrie said yesterday:
''We're now calling a January OCR hike. We believe the OCR
needs to be lifted in January. The corollary to moving
earlier is the bank will have to do less tightening later on,
mitigating the potential for the New Zealand dollar to
The New Zealand dollar rose 0.8% after Statistics New Zealand
released its consumer price index result, the official
measure of inflation.
Inflation in December rose 0.1%, lifting annual inflation to
1.6%, the highest result since the start of 2012.
It was the ninth successive result below 2%.
The kiwi rose as high as US83.28c from A82.66c, before
''The kiwi is up half a cent very quickly on that significant
positive surprise of CPI,'' Imre Speizer, market strategist
at Westpac Banking, said.
''The implication from that rise is the Reserve Bank will
almost certainly be hiking rates in March. But it also raises
the possibility it will start as early as January.''
Mr Bagrie said prices rose in eight groups monitored by
Statistics NZ and fell in three, reflecting the spate of
offsetting shocks hitting the economy.
However, much of the surprise behind the stronger than
expected CPI was in a milder than expected fall in tradeable
Tradeable prices fell 0.5%.
The high dollar and competitive retail environment were
continuing to dampen pricing pressures in the wider retail
sector, he said.
In a survey of prices collected from retail outlets,
Statistics NZ noted 15% of all quarterly items were either
discounted or ''on special'' in the December quarter, the
same proportion as a year ago.
But the distributional data provided a slightly less benign
interpretation, Mr Bagrie said.
The price movements showed prices for 50% of items rose, the
highest for a December quarter since the 2010 GST increases.
The portion showing price falls was the lowest since the
third quarter in 2012.
''A strengthening retail outlook suggests we are likely to be
past the low-point for annual tradeable inflation.''
With the economy strengthening and the Reserve Bank
emphasising the importance of keeping future inflation
anchored around the target mid-point of 1.5%, there was
limited margin on OCR settings, he said.
''The January OCR decision is likely to be finely balanced.''
Central bank governor Graeme Wheeler had previously indicated
he would start raising the OCR this year to head off the
threat of future inflation as the Auckland and Christchurch
property markets continue to bubble and as the Canterbury
rebuild gathered momentum.
At a glance
• January OCR hike possible
• Inflation higher than expected at 1.6%
• Dollar rises as consumer price index surprises
• Geographically-based strengthening in construction costs