CPI & Inflation… Why Today (Friday) Matters

Today at 10am New Zealand’s Consumer Price Index (CPI) data will be out. The market is expecting a jump in prices of 2.8% YoY, but ASB notes ” there is a clear upside risk to that forecast and an annual reading north of 3% remains a live possibility”.

With the RBNZ ‘s target inflation band between 1% to 3%, they were clearly cautious about an overheating economy at their briefing on Wednesday this week. Today’s CPI numbers will be a guide for how soon NZ might see an increase in interest rates – Many NZ banks have adjusted their forecasts in the past few weeks and some increased mortgage rates, and now suggest the RBNZ may raise rates as soon as August 2021 (NEXT MONTH!)

Globally, similar pressures exist – The US Reserve Bank have continued to be supportive in their comments overnight, acknowledging inflation expectations have galloped up faster than expected (US CPI is currently 5.4%), but emphasising it’s still too early for the bank to begin scaling back stimulus – The question is, will this morning’s NZ CPI overshoot, and force the RBNZ to move rates?

Why does this all matter?

With inflation rising, NZ households and investors will in turn be exposed to higher interest rates. Almost 80% of outstanding mortgages in NZ are either floating (12%) or fixed for less than 1 year (65%) (RBNZ, 2021). And Harbour Asset Management are now calling “The New Zealand mortgage rate decline of the past 7 years looks to be over” and “we think mortgage rate rises of 1.5-2.0% are quite feasible over the next 1-2 years”.

Are you one of the 80% mentioned above? How are you shaping and preparing for your future?

We are here to help. If you have any questions or queries, contact Amicus today.

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Post written by Tom Stanley, Amicus Group

Date: 16 July 2021

Source: Harbour Asset Management article

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