The Reserve Bank of New Zealand has raised the Official Cash Rate by 25 basis points to 2.75 per cent, its second increase of the year.
June quarter inflation ran higher at 4.1 per cent against the bank’s own 3.9 per cent projection with supply shocks from the Strait of Hormuz crisis continuing to have ripple effects despite the signing of a US-Iran memorandum of understanding in June.
Tradeable inflation, which measures goods and services influenced by foreign markets, rose 4.9 per cent, with petrol alone accounting for 46.4 per cent of that increase. Petrol was also the single biggest driver of the headline figure, contributing 23.5 per cent of the 4.1 per cent annual rise. But not all of the pressure is imported. Non-tradeable inflation, which reflects local costs like labour, rent and services rather than overseas prices, came in at 3.4 per cent in the June quarter.
For the time being, businesses are absorbing more costs than they are passing on, with input costs up 2.9 per cent against output price growth of just 1.6 per cent in the June quarter. That is disinflationary for now, though it leaves a backlog of cost pressure that could turn this temporary cost shock into a permanent one.
Housing data available ahead of today's decision already showed a market losing momentum. The national median house price slipped 1.9 per cent in July to $760,000, down from June's $775,000, and down 0.7 per cent on a year earlier, the first annual decline since October last year. Homes are also taking longer to sell, with the median days to sell rising to 50 in July, up from 48 in June and 43 in April. Sales have fallen 5 per cent since May.
At 2.75 per cent, the cash rate still remains relatively low, so today's move is expected to remove stimulus rather than actively restrain the economy. The bigger question for households and mortgage holders may be less about today's move and more about how firmly the Bank signals its intentions for October.