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\nHigh food, power and housing coasts are offset by cheaper fuel.
\nPhoto: RNZ\n<\/p>\n
Inflation is expected to hit a 12-month high, as surging food prices and power costs put the squeeze on household budgets.<\/p>\n
Consumer prices for the three months ended June are expected to have risen 0.6 percent, pushing the annual rate to 2.8 percent from 2.5 percent in March.<\/p>\n
ANZ senior economist Miles Workman said there would be familiar domestic drivers of the latest numbers.<\/p>\n
“The main drivers of quarterly inflation are expected to come from the food and housing-related groups – accelerating electricity inflation, but slowing rents and construction.”<\/p>\n
High export prices for meat and dairy products<\/a> have driven local food prices, and thus stoked inflation, but at the same time, they are delivering strong export returns that have supported the economy.<\/p>\n ASB senior economist Mark Smith said the spike in inflation was expected to push the annual rate above three percent in the September quarter, but should prove to be temporary.<\/p>\n “We expect the period of three percent-plus inflation to be short-lived. Forthcoming inflation expectations surveys will be critical for ascertaining whether team transitory or team persistence will win the inflation tug-o-war.<\/p>\n “Our core judgement is that the deteriorating global outlook and the large margin of spare capacity will dampen the medium-term outlook for inflation.”<\/p>\n RBNZ discomfort<\/p>\n Workman said the higher inflation numbers would be uncomfortable reading for the Reserve Bank (RBNZ), which would have to balance between controlling inflation and helping the economy.<\/p>\n “The RBNZ will need to balance any upside surprise in the CPI against the signal from the high-frequency data, which is currently pointing to a stalling recovery and therefore downside risks to the medium-term inflation outlook.”<\/p>\n In its most recent monetary review, the RBNZ acknowledged the speed-up in inflation, but also gave a strong hint of a further rate cut at the end of August.<\/p>\n “If medium-term inflation pressures continue to ease as projected, the committee expects to lower the official cash rate further<\/a>,” the RBNZ statement said.<\/p>\n Kiwibank economists said the issue for the RBNZ and interest rate policy was underlying inflation trends.<\/p>\n “Encouragingly, core inflation has been trending south since hitting the 6.7 percent peak at the end of 2022. In the year to March 2025, core inflation fell to 2.6 percent.”<\/p>\n They said the economy needed lower rates and they expected another 25 basis-point cut in August.<\/p>\n At this stage, Workman picked the cuts in August, November and early next year would take the cash rate to a low of 2.5 percent.<\/p>\n