“The RBNZ would have been happier if the surprises had come via non-tradable inflation, which it thinks is more responsive to monetary policy than is tradable,” Toplis said.
Non-tradeable inflation measures final goods and services that do not face foreign competition and is an indicator of domestic demand and supply conditions. However, the inputs of these goods and services can be influenced by foreign competition.
“Non-tradable was lower than anticipated but the annual increase of 6.8 per cent (a record high) was much closer to the RBNZ’s 7.1 per cent pick,” Toplis said.
“Nonetheless, the direction of surprise, if not the weight, will be welcomed.”
Food was the largest contributor to the March 2023 annual inflation rate, Stats NZ said.
This was due to rising prices for vegetables, ready-to-eat food, and milk, cheese and eggs.
Vegetable prices increased 22 per cent in the 12 months to March 2023, while ready-to-eat food and milk, cheese and eggs increased 9.7 per cent and 15 per cent respectively.
After food, the next-largest contributor to the annual increase was housing and household utilities.
The increase was due to rising prices for construction and rent.
Prices for building a new house increased 11 per cent in the 12 months to March 2023, following a 14 per cent increase in the 12 months to December 2022.
These were concerning “hotspots”, said Kiwibank chief economist Jarrod Kerr.
“Food price inflation is being felt, with a whopping 3.7 per cent gain in the quarter alone. Devastated crops in Hawke’s Bay will take years to recover.
“Construction-related costs are still too high, although they have moderated a touch. And the rebuild from the flooding and cyclone will prove to be inflationary,” he said.
The township of Wairoa underwater after being hit by Cyclone Gabrielle. Photo / Wairoa District council
Economists unanimously expect one more 25-basis-point rate hike next month - taking the official cash rate to 5.5 per cent.
“The inflation outlook is inherently uncertain, with the full inflation impacts of Cyclone Gabrielle yet to come,” said ASB senior economist Mark Smith.
“The RBNZ’s ‘least regrets’ analysis will highlight the risks of a more protracted period of high inflation and the much greater economic damage that this could cause.”
As well as a further 25-basis-point increase in May, the RBNZ would need to impose “restrictive OCR settings for a concerted period to push inflation lower”, he said.
“However, we look to be nearing the peak of the OCR hiking cycle.”
By early afternoon, the New Zealand dollar was down by almost half a US cent at US61.60c from US62.4c before the CPI’s release. In the interest rate markets, the two-year swap rate – which has an influence on home mortgage rates – was down by 10 basis points at 5.14 per cent.
Around the world, inflation remains high - although it appears to have peaked in Australia and the US, where it now sits at 6.8 per cent and 4.98 per cent respectively.
In the UK, new data last night showed the inflation rate stuck in double digits at 10.1 per cent.
Finance Minister Grant Robertson welcomed the lower-than-expected number but recommitted to tackling the high cost of living.
“While lower than expected, today’s result is still elevated by the impact of flooding and cyclone events on food prices, with prices increasing 8.6 per cent for vegetables. The prices of second-hand cars and insurance were also elevated. The effects of the cyclone will flow through into the June quarter results as well,” he said.
“Treasury forecast inflation will be 0.4 percentage points higher in the first half of the year because of the extreme weather. We don’t have control over what the weather does, but we know it puts a strain on household budgets.”
The cost of living remained the main challenge in the economy and would be a major focus in May’s Budget.
The Government was reducing spending to more normal levels and aiming to reduce overall demand in the economy.
The latest figures show central government consumption fell 2.8 per cent in the December quarter and 1 per cent in the previous quarter, he said.
