"It's unlikely that the latest survey will have much bearing on the RBNZ's decision to begin raising the OCR at its next review in March, but it does underscore that the RBNZ has some work to do to re-establish the credibility of its inflation target."
- Michael Gordon, senior economist at Westpac Banking Corp.
During the last policy meeting RBNZ Governor Wheeler reiterated his pledge to start increasing interest rates soon, also mentioning the necessity to gather more information in order to asses the economy's outlook in March, bolstering the case of March's rate hike. Stronger inflationary pressure and the hike of the interest rates that would accompany them will definitely send the kiwi higher, reducing the competitiveness of the nation's exports and import substitution industries. Policymakers also pledged to start increasing rates as soon as inflation moves towards the midpoint of the central bank's 1-3% target band.
Tuesday's report, however, showed inflation will average 2.3% during the next two years, hovering at a level slightly above the mid-point of the central bank's target range. Regarding the short--term outlook, consumer prices are expected to stand at 2% in the year ahead. The survey from the central bank also showed in the coming quarter the CPI will rise 0.49%, slightly lower than respondents expected a quarter earlier. Graeme Wheeler warned that inflationary pressure is projected to increase over the next two years, even though the headline inflation has been moderate so far. Rising inflation expectations from companies as well as a drop in the unemployment rate will help employees to bargain for higher wages, hence, putting additional pressure on inflation.
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