Sharp rise in inflation forecasts this week

Banking economists expect inflation to rise further when Stats NZ delivers its December quarter verdict on Wednesday.

Monday, January 24, 2022, 8:40 a.m.

This could leave many brokers eventually negotiating significantly higher interest rates on loans for their clients.

The SBA expects inflation to reach its highest level in 30 years.

It indicates that a 1.6% increase in the consumer price index (CPI) for the December quarter will result in annual inflation of 6.1%.

This is much higher than the current 4.9%, which is itself well above what the Reserve Bank is supposed to tolerate.

And 6.1% will not be the last. Banking economist Mark Smith expects the rate to rise further, peaking at 6.3% and remaining high through next year.

Smith blames “a relentless stream of price and cost increases from a multitude of domestic and external sources” for the problem, which will lead to “a more aggressive path of OCR tightening” by the Reserve Bank.

Westpac is a little tighter, but it also sees inflation rising. Its chief economist Satish Ranchod forecasts a quarterly rate of 1.2%, which will bring the annual rate to 5.7%.

“New Zealand is in the midst of a perfect storm of inflationary pressures,” Ranchod said.

“Much of this is the result of offshore factors. Disruptions to global manufacturing chains have led to shortages of many consumer goods and production inputs.

Internal pressures compounded the problem.

“New Zealand is in the midst of a perfect storm of inflationary pressures,” Ranchod said.

Like other economists, Ranchod projects the OCR to be 3% by next year.

This will force advisors to negotiate higher interest rates for their clients. Currently, most interest rates are between 4% and 5%, with an OCR of 0.75%.

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