VIEW: ASB Now Look For 5.25% OCR Peak

ASB note that “annual CPI inflation was considerably stronger than expected and displayed all of the hallmarks of an economy where price increases look to be increasingly entrenched.”

• “We are treating much of the unexpected increases as being economic signal (rather than noise), and the RBNZ will likely be increasingly concerned. In short, inflation is much too high and is becoming increasingly ingrained.”
• “Restrictive OCR settings and a clear RBNZ focus on delivering eventual sub 3% inflation outcomes is needed.”
• “With the RBNZ having the inflation bit between its teeth, all options are likely to remain on the table. We have changed our OCR call to now have a 75bp hike in the November MPS (November 23rd), and with two 50bp hikes in February and April 2023 (5.25% OCR peak).”
• “We have pencilled in OCR cuts from the second half of 2024 but this will depend on annual inflation being on track to settle in the inflation band and there being sufficient slack in the labour market. This still looks a long way off with risks tilting to a later date for considering cuts.”