"There are signs underlying inflation pressures will continue to lift over the coming year"
- ASB economists
While New Zealand business morale declined from the highest level in 20 years in the second quarter, according to the Quarterly Survey of Business Opinion, majority of economists focussed on a fact that the survey showed inflation is accelerating. The consumer price index might have risen 0.4% in the second quarter for an annual rate of 1.8%, according to a Reuters survey. The government figures due for release on July 16 would post the fastest inflation since the third quarter of 2011, when prices reflected the 2010 hike in good and services tax to 15%. Market expectation for CPI is just slightly ahead of the Reserve Bank on 0.3% for the quarter and 1.7% annual. If expectations are met, the RBNZ will have no reason not to increase the official cash rate to 3.5% on July 24, the highest level since December 2008. The central bank tries to keep inflation near the mid-point of its 1%-3% target band.
Separately, New Zealand's house sales declined in June from the previous year, adding to signs the central bank's restrictions of low-equity loans are curtailing demand at the cheaper end of the market. Sales plummeted 6.1% in June from 2013 and were down 12.3 compared to May's figure, according to the Real Estate Institute. The median prise rose $33,250 or 8.4% in the year to $427.250, and declined 0.6% from may.
© Dukascopy Bank SA