An EFTPOS card being swiped at a terminal. Photo: 123RF
Economists have been quick to forecast even more aggressive interest rate rises from the Reserve Bank (RBNZ) to combat stubbornly high inflation.
Stats NZ data showed inflation of 2.2 percent for the three months ended September, and a fractional slowing in the annual rate to 7.2 percent from the 32-year high of 7.2 percent in the previous quarter.
The strength and breadth of price rises, especially in domestic sectors such as food, housing, and building, was well above expectations of a 6.6 percent annual rate.
Most forecasters were already picking a 50 basis point rise next month, and perhaps a couple of smaller rises next year to a high point of 4.5/ 4.75 percent.
But the inflation numbers had them quickly polishing their crystal balls on the RBNZ's next steps.
"Today's report will be like a red rag to an inflation fighting bull," Kiwibank chief economist Jarrod Kerr said.
RBNZ was now faced with having to take more aggressive action to get inflation back inside the target 1-3 percent band, he said.
"Resilient demand and a weakening Kiwi dollar is frustrating the outlook for inflation. We see the RBNZ hiking the cash rate by 75 bps in November and eventually lifting the official cash rate [OCR] to 5 percent next year."
Jarrod Kerr says the latest Reserve Bank report is "like a red rag to an inflation fighting bull". Photo: Supplied / Gino Demeer
The RBNZ pointedly disclosed last month that it had debated between a 50 and 75 basis point rise, before settling on the lower amount.
Kiwibank was quickly joined by the ANZ, ASB, BNZ, Infometrics, and Westpac.
ANZ economists shifted to picking two outsized rises of 75 basis points in November and February to a peak of 5 percent.
"Such large moves so late in the cycle are risky, no question, and could well turn out to be a mistake.
"But today's data gives the RBNZ little choice. They are further behind the inflation game than thought," ANZ said.
Key considerations for how far and how fast the RBNZ will go would be the strength of the local labour market and state of the global economy.
Unemployment is close to record lows at 3.3 percent, which has been a driver of decade high wage growth.
Outside of New Zealand other central banks are moving even more hastily than the RBNZ to tackle inflation, which is much higher than here.
But at least one economist suggested the time for jumbo rate rises might have passed.
"With every successive hike, the chance of superhikes diminishes, especially as monetary policy becomes restrictive, the time for superhikes was a year ago," Salt Funds Management economist Bevan Graham said.
He said it was largely accepted that rate rises take 12 to 18 months to have an effect on demand.
"That means a judgement call becomes increasingly warranted between how much the bank has already achieved and is yet to come through in the numbers, and how much work still needs to be done."
However, the reality for consumers was that more RBNZ rate rises almost definitely meant higher borrowing costs.
Infometrics principal economist Brad Olsen said the 75 point rise was unprecedented in New Zealand, but showed the scale of the Reserve Bank's task.
"No matter if it's the government's fault or the international sector's fault, whoever it is New Zealanders at home do not give a damn over whose fault inflation is. They just know their own household costs are going up intensely. Whoever has power needs to get that under control."
He said the Reserve Bank's job was an easy one, but also difficult in what it would mean for mortgage holders.
"We're talking thousands, if not tens of thousands more for people's mortgages. That's a huge amount of cash they're going to have to find.
"But it is unfortunately the realistic way the Reserve Bank is going to get inflation under control: to very heavily hit the economy, to try and bring the level of demand that we're seeing out there at the moment back down a bit more to where we're able to supply, because the disruptions from Covid are still so intense."
Robertson not celebrating
Finance Minister Grant Robertson acknowledged the 0.1 percent drop was not as much as widely predicted.
"I wouldn't say I'm celebrating, clearly the rising cost of living is affecting many Kiwi households and businesses. Inflation has eased slightly on an annual basis. Relative to the rest of the world, New Zealand continues to be in a reasonably good position, but that doesn't stop it being hard on households."
Robertson said some of the non-tradable costs continued to be affected by overseas issues, and the government was working on them.
"On the building supplies, we're definitely seeing the costs of that easing in terms of shipping costs. On labour supply, we're now seeing tens of thousands of positions approved via the new visa check system, and I think we'll start to see some of those things ease in the near term."
National's finance spokesperson Nicola Willis said the runaway prices were making a mockery of the government's claims of a strong economy.
"These inflation figures are much worse than even the most pessimistic predictions, and make the Reserve Bank's hopes of a slowdown look wildly out of touch."
Grant Robertson and Nicola Willis had contrasting views on the latest inflation figures. Photo: RNZ / Angus Dreaver
Additional reporting by Giles Dexter