Westpac expects Thursday's inflation dip to be brief, with a 4.2% peak by December
Westpac expects Thursday's inflation figures to show annual price growth easing to 3.7%. It does not expect that to last.
Westpac's October forecast update, released on 9 October according to newswire.co.nz, says CPI inflation should fall to 3.7% in the September quarter and then rise to 4.2% in the December quarter. Annual inflation was 4.1% in the June quarter. As interest.co.nz reported, that was the highest since 4.7% in December 2023, so a 4.2% reading would be the highest in about three years.
Stats NZ publishes the September-quarter CPI on 22 October. Westpac estimates prices rose 0.7% over the quarter.
"[The easing] appears set to be only a temporary reprieve," Westpac NZ chief economist Kelly Eckhold said, as quoted by interest.co.nz. "We now expect consumer prices to rise 1.1% in the December quarter."
Fuel is the main driver. Eckhold told interest.co.nz that sharply higher global fuel prices, made worse by a fall of more than 4% in the New Zealand dollar since the start of September, had pushed petrol prices up about 50 cents a litre over the past month. The national average for 91 unleaded hit a record $3.53 a litre. He called the inflation picture "all gas, no brakes". Westpac's summary says high fuel costs and a weak housing market will likely crimp consumer spending before Christmas.
Westpac is below the Reserve Bank for September and above it for December. In its September Monetary Policy Statement, the RBNZ cut its annual inflation forecast for both the September and December quarters to 3.9%, down from 4.3% and 4.1% in May, interest.co.nz reported. Eckhold pointed to comments RBNZ Governor Anna Breman made in a presentation in Dunedin. She said higher oil prices meant inflation could come in above the bank's forecast in the near term. She said the bank was focused on the medium term.
Even so, Westpac does not expect a rate rise this month. Its official cash rate forecasts are unchanged: a hold at 2.75% at the 28 October review, then a rise to 3% with the 9 December Monetary Policy Statement. The RBNZ lifted the OCR to 2.75% on 2 September, its second rise since it resumed tightening in July, mpamag.com reported.
Eckhold said Westpac had expected the RBNZ to slow the pace of hikes because its estimated neutral rate of about 3%, the level at which rates neither speed up nor slow the economy, was "coming into view". But he added: "We continue to think it most likely that the RBNZ will have more work to do in 2027."
One reason for patience is that borrowing has already got dearer without the central bank lifting a finger. Eckhold said an unexpected rise in long-term interest rates over the past six weeks or so had tightened conditions and at least cancelled out the boost from the weaker dollar.
Homeowners get the bleakest revision. Westpac now expects national house prices to fall 1.4% in 2026, having forecast a 0.6% rise. That implies falls of 0.5% in the September quarter and 0.8% in December. Prices "have not stabilised as expected in recent months", Westpac's summary says, and Eckhold said the earlier forecast of a small rise "now looks too optimistic".
Sales have kept weakening and the median time to sell a house has stretched to 48 days, Eckhold said. According to mpamag.com, Cotality's Home Value Index fell 0.3% in September, its sixth monthly decline in a row.
The pain isn't even. According to mpamag.com, parts of the South Island more exposed to the strong export sector have held up better and Westpac sees that regional gap continuing, while homeowners in the major North Island cities may have to wait some time before their property values rise. Eckhold also warned that the risks point to another weak housing year in 2027, especially if heavier taxes on capital gains from investor housing follow the 2026 general election.
Westpac has also trimmed its GDP forecasts, cutting 2026 growth to 2.5%. It says the risks lean to the downside because of higher energy prices and long-term interest rates.
Dairy farmers get better news. Westpac raised its 2026/27 Fonterra milk price forecast to $9.75/kgMS and opened its 2027/28 forecast at $9.50, pointing to strong commodity export prices.