By Lucy Craymer
WELLINGTON, April 17 (Reuters) - New Zealand food prices
surged in March as flash floods and a cyclone this year jacked
up fruit and vegetable prices, with economists expecting first
quarter inflation data due later this week to keep the central
bank on its policy tightening path.
The Reserve Bank of New Zealand (RBNZ) caught markets off
guard earlier this month by hiking the official cash rate by 50
basis points to 5.25% in an effort to rein in inflation
expectations.
Statistics New Zealand said on Monday food prices rose 12.1%
in March year-on-year, the biggest annual increase in more than
30 years, though economists from the nation's largest banks had
expected an even stronger price surge.
Markets are focussed on first quarter inflation data due on
Thursday for more clues on the RBNZ's policy path. Expectations
are that the central bank will raise rates again by 25 basis
points as overall price pressures remain strong, a Reuters poll
showed.
The jump in food inflation last month was driven by
increased egg prices due to the banning of battery cages for
hens and rises in vegetable prices after crops were destroyed by
flash floods in Auckland in January and Cyclone Gabrielle damage
across the North Island in February.
“With Cyclone Gabrielle devastating areas dubbed the fruit
bowl of NZ, it’s no surprise to see a chunky double digit
increase in fruit and vegetable prices,” said Kiwibank
economists in a note.
It said it expects inflation to trend downward this year and
that the cyclone had prevented a more convincing slowdown in the
first quarter.
The RBNZ has hiked rates by 500 bps since October 2021,
undertaking its most aggressive tightening streak since the OCR
was introduced in 1999.
In its policy statement following this month's 50 bps hike,
the central bank said recent weather events had had a bigger
inflationary impact than previous forecasts had predicted. In
February, it forecast annual inflation of 7.3% in the first
quarter.
Westpac Bank expects inflation to come in at 7.1% but still
predict a 25 bps hike by the RBNZ in May. Satish Ranchhod, a
senior economist at Westpac Bank, said that even if inflation
does come in line with Westpac’s call it still leaves a picture
of “strong and widespread price pressures.”
(Reporting by Lucy Craymer
Editing by Shri Navaratnam)
