SAEDNEWS: New Zealand's annual inflation accelerated during the second quarter, reaching its highest level in two and a half years. The stronger-than-expected inflation figures have reinforced market expectations that the country's central bank will increase its official cash rate at its next monetary policy meeting in September.
According to Saednews, New Zealand's annual inflation rate increased to 4.1%, slightly above economists' expectations of 4.0% and the Reserve Bank of New Zealand's (RBNZ) forecast of 3.9%, according to data released by Statistics New Zealand.
The Consumer Price Index (CPI) rose 1.5% in the second quarter compared with the previous quarter, exceeding the market forecast of 1.4%.
Following the data release, the New Zealand dollar edged higher, while two-year swap rates also increased, reflecting stronger expectations that the central bank may continue raising interest rates.
Westpac senior economist Satish Ranchhod said the report was less concerning than feared because underlying inflation pressures had eased, although overall inflation remains elevated. Westpac expects the RBNZ to deliver additional interest rate increases at its September and December policy meetings.
Earlier this month, the Reserve Bank raised its official cash rate to 2.50%, the first increase in three years, and indicated that further policy tightening is likely as it works to bring inflation back within its target range while supporting the economy's recovery.
The central bank expects inflation to slow to 3.3% in the third quarter as the impact of higher oil prices related to the Middle East conflict gradually fades.
Fuel costs were the largest contributor to inflation. Petrol prices climbed 27.5%, while diesel prices surged 71.1% over the year. Statistics New Zealand noted that without increases in petrol and diesel prices, annual inflation would have been 2.9%.
Meanwhile, annual non-tradeable inflation, which measures domestic price pressures, eased to 3.4%, its lowest level in five years, down from 3.5% in the previous quarter.
Globally, inflation trends remain mixed. Inflation in the United States slowed more than expected as gasoline prices declined, while European Central Bank policymakers continue to expect inflation to remain above target into next year despite further anticipated interest rate increases.
