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Peso Weakens Amid Assessment Of Omicron Risk

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ASB note that "the inflation outlook has significantly deteriorated in recent months, reflecting a perfect storm of demand, supply and cost influences. Our analysis points to a higher peak in near-term inflation and for elevated inflation pressures to persist through into much of 2022 (and possibly beyond). Annual CPI inflation is expected to end 2021 at close to 6% and may still be above the RBNZ's target band over the first half of 2023. Higher and more persistent inflation pressures will make the job of reining in inflation that much more challenging for the RBNZ. We now expect a steady sequence of 25bp hikes from the RBNZ, with the OCR to peak at 2% by late 2022, versus a 1.5% peak previously. However, there remains a significant amount of uncertainty over the outlook, particularly further into 2022. Going forward, we will be keeping close tabs on the labour market and inflation anchors."