New Zealand Economic Comment: QSBO pricing intentions surge despite lower oil. UBS still expect RBNZ to hike +25bps in Sep.

Research evidence excerpt

New Zealand Economic Comment: QSBO pricing intentions surge despite lower oil. UBS still expect RBNZ to hike +25bps in Sep.

forecasts last week. Indeed, Conway noted upside risks to the RBNZ’s Q3 CPI forecasts.

Conway also noted that households are more attentive to inflation, and businesses are

quicker to pass on cost increases than in the past. Inflation has been ‘above our target

range for 14 of the 25 quarters since 2020’, so risks have grown that cost shocks turn

into more persistent inflation. In such an environment, responding ‘decisively’ is key, and

policy may need to respond ‘more firmly’. Conway said ‘If inflation pressures stemming

from the Middle East conflict prove to be more persistent than expected, we will

respond.’ Furthermore, Conway noted that ‘less stimulatory policy will also mean less

medium-term inflation pressure’. This is what we had flagged in our July RBNZ preview –

that some incrementally stronger demand now could come at the expense of higher

core inflation later.

RBNZ rhetoric increasingly similar to RBA: inflation has been too high

Some of Conway’s comments increasingly sound like the RBA, in that inflation has been

above target and too high. Conway noted that ‘we are collectively worse off’, just as

RBA Governor Bullock has said ‘Australians are poorer because of this shock to oil

prices’. Conway cited recent RBNZ research findings that businesses are passing on cost

increases more readily, similar to RBA research, quoted by the RBA’s Hunter, that prices

have become less rigid since 2022. Both highlight the importance of keeping inflation

expectations anchored in an environment where inflation has been above target and too

high.

UBS still see the RBNZ delivering a follow-up +25bp hike in Sep-26