Inflation to "force" OCR hike

Jeremy Couchman, Kiwibank Senior Economist

It comes as September inflation figures showed a stronger-than expected 0.9% quarter on quarter increase, taking annual inflation up to 1.9% -- just below the Reserve Bank's 2% target mid-point. Rising inflation and GDP growth are needed before the central bank considers a hike. 

Jeremy Couchman, said rapidly increasing inflation, driven by house price increases and the 20% year on year increase in petrol prices (which contributed to 40% of the annual inflation gain) would leave the Reserve Bank in an "awkward position". 

The economist said the Reserve Bank's view that inflation would "gradually" rise to the target mid point was "increasingly untenable". Couchman added: "For now at least, the RBNZ can still claim that much of the recent rise in inflation pressure is coming from cost-push inflation factors that can be looked through."

Couchman said inflation was "on the charge", and predicted "momentum is likely to build". He said this would ultimately force the central bank to move forward its timeline on lifting the OCR: "We see GDP growth picking up above trend into 2019, and inflation is likely to accelerate. We believe that ultimately the RBNZ will be forced to begin gradually hiking the OCR sooner than is currently signalled. We believe the RBNZ will be able to hike by May 2020, 6 months ahead of their schedule."