WELLINGTON- New Zealand’s consumer prices rose at the fastest pace in three decades last quarter, underlining the need for the central bank to stay on its hawkish course to contain price pressures without tipping the economy into recession.
The New Zealand dollar slipped after the data showed inflation was not quite as hot as feared though, slightly softening expectations the central bank would again hike rates by 50 basis points in May.
Annual inflation rose 6.9 percent in the first quarter from 5.9 percent in the fourth quarter, the fastest since a 7.6 percent clip in the June quarter of 1990, Statistics New Zealand said in a statement on Thursday
CPI rose 1.8 percent in the quarter ending March from a 1.4 percent rise in the fourth quarter. But the data was below economists’ expectations in a Reuters poll that forecast a 2.0 percent rise for the quarter, and an annual rise of 7.1 percent.
The Reserve Bank of New Zealand (RBNZ) raised interest rates by a hefty 50 basis points to 1.50 percent last Wednesday, its fourth increase in a row. It has signaled that further hikes will be needed if it wants to get ahead of inflation.
Inflation pressures were broad based with domestic price pressures continuing to intensify.
Statistics New Zealand data showed rising prices for food, petrol, construction and housing.
“This domestic inflation is the kind that doesn’t go away quickly,” ANZ Bank economists said in a research note. “This continued rise in domestic inflation pressures only reinforces the need for ongoing interest rate rises by the RBNZ.”
ANZ believes higher interest rates will squeeze indebted households this year and engineering a soft landing for the overheated economy could be challenging, especially with the housing market already softening. — Reuters
