Inflation surges! So, what about rates?

Surprise! Sorry. 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. If you ‘get’ monetary policy, you’ll know rising inflation often sends central bankers running to hover over the rate increase button. And by law the RBNZ must try to keep rates between 1-3%.

So, will there be a rate rise? Probably not. With petrol prices up 19% in the last 12 months and the housing market 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 has signalled it expects to hold rates at 1.75% until early 2020. Guvna Adrian Orr even said recently they might go “down” if the economy fails to fire up properly.