New Zealand banks cut Q4 inflation forecasts after October CPI data

Economists from ANZ Bank New Zealand and Westpac Banking (NYSE:) Corp have revised their fourth-quarter inflation forecasts for New Zealand downward following the release of weaker-than-expected October data from the newly introduced monthly Consumer Price Index (CPI). Both financial institutions have reduced their annual inflation predictions to 4.8% from a prior estimate of 5.1%. The Bank of New Zealand has also acknowledged a potential downside risk to its forecast of 4.9%.

The new monthly CPI, which was implemented in response to a request from the Reserve Bank of New Zealand (RBNZ), now includes indexes covering items such as fuel, alcohol, tobacco, accommodation services, and airfares, making up about 45% of the CPI basket. The October figures showed notable declines in domestic and international airfares, food prices, and the cost of gasoline.

Despite these decreases, the overall picture remains mixed, with Westpac still expecting high rates of non-tradable and core inflation. However, the softer inflation data could suggest that the RBNZ might hold off on raising the Official Cash Rate (OCR), which is currently at 5.5%. Yet, ANZ and Westpac are forecasting another OCR increase in early 2024 to help bring inflation back within the central bank’s target range of 1-3%.

This adjustment in forecasts by major banks indicates a shift in expectations regarding New Zealand’s inflation trajectory and monetary policy outlook. As the country grapples with economic pressures, these revised projections provide insight into potential future moves by the RBNZ as it balances growth with price stability.

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