Inflation surges! So, what about rates?

Surprise! Sorry, but not the fun sort. Rising fuel and house prices have helped inflation spike to its highest level in a year. Statistics New Zealand say it rose 0.9% in the June quarter, making the annual figure 1.9%. You know something is up when fourteen economists surveyed by Bloomberg are caught off guard. They’d been betting on a 0.7% rise, while RBNZ was tipping 0.4%.

The unexpected figure saw the $NZ shoot up almost half a US cent to 65.90, however it quickly subsided. If you ‘get’ monetary policy, you’ll know rising inflation often sends central bankers running to hover over the rate increase button. By law the RBNZ must try to keep rates between 1-3%, they use interest rates as a key tool to achieve this.

So, will this inflation kick flow through to a rate rise? Unlikely. With petrol prices up 19% in the last 12 months, rents rising strongly, and the housing market in some areas still firing, there was a lot of white noise. So, although inflation numbers were stronger than expected, they’re unlikely to pressure the RBNZ to raise rates. In fact, the Reserve Bank has signalled it expects to hold rates at 1.75% until early 2020. Adrian Orr even said recently they might go “down” if the economy fails to fire up properly.