Big rises in food costs have helped push the annual inflation rate to its highest point in three decades. Photo: Unsplash / Tara Clark
New Zealand's inflation rate has likely peaked as fuel prices ease, but interest rates are expected to continue rising until at least the end of the year.
The latest Consumer Price Index (CPI) numbers will be released tomorrow morning.
The annual inflation rate is expected to fall from a 32 year high of 7.3 percent to around 6.8 percent, although the quarterly figure will still be an eye-watering rise of 1.6 percent in the three months ended September.
Big rises in food, household expenses such as rates, and the annual rise in alcohol taxes, have more than offset a fall in fuel prices.
ANZ economist Finn Robinson said the fall in the headline rate, while welcome, would offer little real reason to celebrate.
"The fact that there's unlikely to be any sign of a broad-based easing in underlying inflation pressures means monetary policy makers can take only limited comfort from the headline fall."
Proof of how much less bang consumers are getting for their buck will be contained in the underlying and core inflation numbers, in particular domestic inflation otherwise known as non-tradables, such as rents, rates, and building costs.
"There is still a large bow wave [of] domestically-generated inflation pressure, and we expect annual non-tradable inflation to hold close to - or set - fresh record highs," said ASB senior economist Mark Smith.
A further inflationary pressure has been the slide in the New Zealand dollar, down close to 8 percent against the US dollar over the past three months, which has made imports more expensive.
"What comes up must eventually come down, but the big question is 'when?'"
Smith said the Reserve Bank of New Zealand (RBNZ) had the bit between its teeth in fighting inflation and cooling the economy and would not be swayed by a fall in the headline rate.
"The RBNZ are unlikely to move pre-emptively on the downside and will not blink until they are confident high rates of inflation have been conquered and 1-3 percent annual inflation is locked in."
That means more stiff anti-inflation medicine to be doled out in the form of hefty interest rate rises, with a 50 basis point rise to 4.0 percent pencilled in for the last RBNZ meeting in November.
After that, it is something of a lottery, with most forecasters expecting at least one more rate rise early next year, but some - including the ANZ - picking an OCR peak of 4.75 percent.