Fuel-price and rates rises expected to push inflation higher

Analysts are picking inflation will edge up beyond the Reserve Bank’s expectations when data is...
Analysts are picking inflation will edge up beyond the Reserve Bank’s expectations when data is released tomorrow. Photo: Getty Images
The annual rate of inflation is expected to nudge higher, largely caused by  rising fuel costs during the past quarter.

Petrol prices  which hit record highs beyond $2.50 a litre last week.

Another seasonal boost to the consumer price index, which measures inflation, is expected to come from a 4% increase in council rates  around the country.

The Reserve Bank’s target is annual inflation at the mid-point of 1%-3% and the CPI has been within that range since mid-2016. peaking twice in that period to touch 2%.

The price index will  be released tomorrow.  While the Reserve Bank predicted

inflation for the September quarter would be  0.4% — and annually 1.4% — Westpac senior economist Michael Gordon believes it will be higher, at  0.7% for the quarter and  1.7% for the year.

"Higher fuel prices account for much of the expected quarterly rise, and are likely to push annual inflation higher again in the near term,"  he said.

Inflation was shaping up to rise above the midpoint 2% of the Reserve Bank’s target range, for at least a short period, he said.

The cross rate between the New Zealand and US dollars hit more than two and a-half year lows last week, hovering just above US64c for most of the week as the greenback went from strength to strength because of the strong US economy.

ASB chief economist Nick Tuffley was also picking a higher than forecast outcome, also settling on 0.7% for the quarter and 1.7% annually.

He, too, predicted fuel and housing-related costs would be the main drivers.

"We’ll be watching for signs of businesses passing on these higher [fuel] costs to consumers."

He reiterated the ASB expected the Reserve Bank to leave the OCR on hold until early 2020.

Mr Gordon  expected the lower exchange rate during the past year would have  impacted on the prices of imported goods. Mr Gordon said the rising fuel prices were a mixed bag for monetary policy, adding to inflation up front but also weighing on activity over the medium term. The interest-driving official cash rate (OCR) remains at a record low 1.75%, with expectations it will not be moved up or down until well into 2020.

"Higher inflation caused by petrol prices certainly wouldn’t prevent the Reserve Bank from cutting the OCR if there were signs the economy was faltering," he said.

The single biggest contribution to Mr Gordon’s inflation forecast was a 6% rise in petrol and diesel prices, stemming from a trifecta of rising world oil prices, a falling exchange rate and the introduction of Auckland’s regional fuel tax.

simon.hartley@odt.co.nz

Add a Comment

 

xmas_banner_620_x_95.jpg

See more great gift ideas !   For Her  |  For Him  |  For Families  |  For Kids  | 

xmas_banner2.jpg