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Analysts at ANZ Bank New Zealand Limited (ANZ) noted that the growth outlook has softened recently, but inflation looks set to lift, boosted by a range of cost-push factors.

Key Quotes:

“This makes the outlook for monetary policy a bit more complicated at present, and focusing primarily on CPI inflation in this environment runs the risk of missing important nuances about the policy response.”

“We expect that the RBNZ will be concerned with the underlying trend in inflation and its persistence over the medium term. This means that the RBNZ will be willing to “look through” higher CPI inflation to the extent that it is not expected to be permanent.”

“Our expectation is that core inflation will increase towards the 2% target midpoint only gradually and that we will see limited impacts on medium-term inflation expectations as inflation pressures broaden. If inflation evolves as we expect, the OCR will eventually need to rise – but not any time soon. We continue to pencil in late-2019 for a hike, but a lot could happen between now and then.”