WELLINGTON (BLOOMBERG)- New Zealand inflation surged to the fastest pace in 10 years in the third quarter, reinforcing bets that the central bank will keep raising interest rates.
The currency rose and bond yields climbed to the highest level in almost three years after data showed the annual inflation rate jumped to 4.9 per cent from 3.3 per cent in the second quarter.
Economists had forecast 4.2 per cent. Consumer prices advanced 2.2 per cent from three months earlier, Statistics New Zealand said on Monday (Oct 18) in Wellington, exceeding the 1.5 per cent median estimate.
Policymakers worldwide are debating whether faster inflation is a temporary phenomenon linked to supply chain disruptions during the coronavirus pandemic or something more persistent.
The Reserve Bank of New Zealand (RBNZ), which seeks to keep inflation around the midpoint of a 1 per cent to 3 per cent target band, raised its official cash rate on Oct 6 and signalled more increases are coming. That is despite a coronavirus outbreak that has kept largest city Auckland in lockdown for two months, curbing economic growth.
"We can now see annual CPI (consumer price index) inflation exceeding 5 per cent by the end of this year," said Mr Mark Smith, senior economist at ASB Bank in Auckland. "The widespread nature of price increases seen today was not a comforting sign. If it were not for the Delta variant outbreak, the pace of OCR (official cash rate) hikes being implemented by the RBNZ would potentially be quicker than 25 basis point increments."
Investors ratcheted up bets on further RBNZ rate hikes. Another increase is now fully priced in for the Nov 24 policy decision and there is a chance the bank will deliver a 50-point move, swaps data shows.
The New Zealand dollar jumped after the inflation report. It bought 71 United States cents at 11.30am in Wellington, up from 70.72 US cents beforehand. The yield on New Zealand's benchmark 10-year bond rose 11 basis points to 2.39 per cent, the highest since January 2019.
The annual inflation rate is the highest since 2011, when prices were boosted by an increase in the goods and services tax (GST) in late 2010.
New Zealand said the 2.2 per cent quarterly gain was the biggest since the fourth quarter of 2010. If the periods impacted by the GST increase were excluded, it was the biggest move since 1987, the statistics agency said.
Price rises were widespread, with 10 of the 11 main groups in the CPI basket increasing in the quarter. The main drivers were housing-related costs, such as construction of new homes and local authority rates, the statistics agency said.