'Flat' inflation tipped to keep interest rates low

Westpac said plunge in petrol prices has taken some of the edge off "headline" inflation. Photo / File

Interest rates look set to remain low if inflation data for the December quarter, due on Wednesday, comes in flat.

Economists expect the consumers price index to be zero or to show a very slight gain in the December quarter, making for a 1.8 or 1.9 per cent gain over the year.

That would compare to a 1.9 per rise in the September year.

Westpac said the recent plunge in fuel prices has taken some of the edge off "headline" inflation. The tightening labour market and the lower New Zealand dollar are expected to support a pick-up in underlying inflation, Westpac said.

"Even if you take some of the noisy stuff out of inflation, it's still in the lower half of the Reserve Bank's range, so they are still a very long way from being challenged at the upper end of the range," Westpac senior economist Michael Gordon said.

ANZ said a CPI in line with its own expectations of zero over the quarter would add to the case being built for a more "dovish" stance by the Reserve Bank in February when it reviews its OCR.

Kiwibank's Jeremy Couchman also expects to see a flat outcome.

"We haven't changed our official cash rate view and still expect the Reserve Bank to keep the OCR unchanged at 1.75 per cent until mid-2020 before gradually hiking," he said.

- Staff reporter