Inflation in New Zealand reaches a three-decade high, increasing the likelihood of steeper rate increases.

Inflation in New Zealand reaches a three-decade high, increasing the likelihood of steeper rate increases.

Consumer prices in New Zealand increased at their highest rate in thirty years, exceeding expectations and increasing the likelihood that the central bank would raise interest rates by an unprecedented 75 basis points at its policy meeting next month.

 

The consumer price index (CPI) climbed by 7.3 percent in the second quarter, faster than the first quarter’s 6.9 percent gain and the largest increase since the June quarter of 1990, when prices rose by 7.6 percent, according to a statement released on Monday by Statistics New Zealand.

 

In comparison to the 1.8 percent increase in the first quarter, the index increased by 1.7 percent quarter over quarter. According to a Reuters survey, experts expected quarterly inflation to increase by 1.5 percent and annual inflation to increase by 7.1 percent.

 

Following the release of the data, the New Zealand dollar surged by 0.5 percent, and the two-year swap rate increased by 11 basis points to 4.15 percent on rising expectations that the central bank will raise rates once more at its meeting in August.

 

The Reserve Bank of New Zealand (RBNZ) is expected to increase interest rates by 50 basis points next month, according to the majority of economists. However, given the hotter-than-expected inflation, there is a chance the bank will deliver a much larger increase than its counterparts globally.

 

If the labour market data on August 3 shows another hawkish surprise, a 75 bp boost at the August (monetary policy statement) is extremely likely, according to ANZ.