ASB Expect CPI To OK 50bp RBNZ Hike In Nov, Note Risks Of Higher Peak

ASB expect “consumer prices to rise by 1.5% q/q in Q3, with annual CPI inflation to ease to 6.5%. Despite the lower NZD, lower global energy prices and sharply lower shipping costs hold out the prospect of further falls in imported inflation.”

• “Our expectation is that the housing group inflation is close to peaking if it has not done so already. Still, the RBNZ has its work cut out for it. Inflation may have already peaked, but it remains much too high for the RBNZ’s comfort.”
• “Core inflation rates are expected to remain sticky at close to (or at) multidecade highs, and price rises widespread. There is also the clear risk that inflation could remain entrenched at high levels and outside the 1-3% inflation target band for longer than the RBNZ would be comfortable.”
• “With the return of inflation to the 1-3% inflation target band still not assured, the RBNZ are likely to err in favour of doing too much (rather than too little) on OCR settings. We expect a 50bp OCR hike in November and a 25bp hike in February (4.25% OCR peak).”
• “Risks are heavily skewed to a more frontloaded pace of RBNZ and higher OCR peak. OCR cuts are pencilled in from later in 2024, but high inflation will need to be conquered first.”