Fall in US inflation provides some hope for NZ home-loan borrowers

Inflation seems to be falling rapidly in the United States.

Kathryn George / Stuff

Inflation seems to be falling rapidly in the United States.

A bigger-than-expected drop in inflation in the United States raises hopes that central banks, including the Reserve Bank of New Zealand, may not need to raise interest rates as high as we feared.

The US Labor Office reported that prices rose 0.4% in October in the US, bringing its annual inflation rate down to 7.7% from 8.2% at the end of September.

Analysts had expected annual inflation in the United States to come in at around 7.9% and this positive development sent stock markets soaring, helping the S&P 500 index to end the week up 5.9%.

SBA chief economist Nick Tuffley said the US data provided some assurance that the US Federal Reserve’s monetary policy tightening was starting to take effect.

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Like most banks, ASB still expects the Reserve Bank to raise its benchmark rate by 75 basis points to 4.25% when it releases its next monetary policy statement on Wednesday next week, after a series 50 basis point hikes earlier in the year.

But Tuffley said the slower pace of monetary policy tightening in other countries was influencing market views on whether the Reserve Bank would “really pick up the pace at this relatively late stage” in the tightening cycle. .

THINGS

Prime Minister Jacinda Ardern said New Zealand’s inflation rate was starting to peak.

Kiwibank also noted that falling inflation figures in the United States had an impact on New Zealand markets.

He said little had changed for the Reserve Bank when it came to weighing its options for next week’s meeting.

But he said he suspected that by the time the Reserve Bank “returns from its three-month summer recess” in February, “global economic data may have eased enough to allay concerns about the inflation”.

BNZ’s head of research Stephen Toplis said he would only raise OCR by 50 basis points next week, but suggested the Reserve Bank “wouldn’t want to appear to be slowing down inflation” and could be influenced by market expectations for a 75 basis point hike.

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