Inflation data unlikely to solve the question of how much to worry

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Quarterly inflation figures, due on Wednesday, could provide insight into whether interest rates are expected to rise earlier than expected.

Statistics NZ reports movements in the Consumer Price Index (CPI) every three months, but there is increased interest in this week’s release due to indications that inflation may slowly stir in New Zealand and abroad.

The Reserve Bank forecast a 1 percent quarter-on-quarter rise in the CPI which would bring annual inflation to 1.7 percent, after rising 0.5 percent in the December quarter.

ANZ and Westpac forecast a quarterly increase of 0.7% while ASB, BNZ and Kiwibank all forecast a jump of 0.8%.

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Whatever the quarterly figure, there will likely be room for disagreement on the implications.

Some economists believe that much of any rise in inflation is likely to be temporary, due to short-term supply chain issues caused by Covid driving up commodity prices and other costs.

Oil prices have climbed 30 percent this year to US $ 63 (NZ $ 88) per barrel, while aluminum is up 17 percent to US $ 2,330 / tonne and soybeans are up 50 percent at US $ 1,438 / tonne.

It’s a broadly similar picture for a line of commodities.

But behind the immediate cost pressures lies a more existential threat that the increase in money supply caused by quantitative easing could lead to an inflationary snowball, possibly requiring significantly higher interest rates. high and triggering a deep recession.

Peanut butter, nut butter, supermarket shelves, premium prices for regular staples

Anuja Nadkarni / Stuff

Peanut butter, nut butter, supermarket shelves, premium prices for regular staples

Leo Krippner, a researcher at the University of Waikato, told the NZ Economic Forum in Hamilton in March that the country probably had the best environment for the emergence of high inflation “since the 1970s.”

Inflation in the 1970s rose from 4 percent to a high of 18 percent.

At the same conference, ANZ chief economist Sharon Zollner warned that a just 1% hike in mortgage rates would lead to an overall 5% drop in disposable income for Aucklanders.

For now, however, inflation is likely to remain confined to the foothills of any historic change, even if it does.

BNZ said it would not be surprised to see measures of “core inflation” working “well above 2 percent” later in the year.

Data from abroad can also be important in shaping expectations.

The International Monetary Fund expects inflation in the United States to hit 2.4 percent this year – near a 20-year high – but predicted it will be a “transitional phenomenon” that will likely not last. not.

But Morningstar analyst warned on Monday that inflation may “not be far behind the take-off in global growth.”

US Federal Reserve Chairman Jerome Powell “would pray that inflation is not also at an inflection point,” the analyst said.

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