The Reserve Bank of New Zealand alongside major bank economists anticipated a drop in both annual and quarterly inflation figures, yet figures went in the opposite direction.

In the September quarter, New Zealand recorded a quarterly increase of 2.2% up from the 1.6% forecast, while annual inflation increased to 7.2% ahead of the 6.6% expected.

Kiwibank Chief Economist Jarrod Kerr noted the latest inflation report will be like a red rag to an inflation fighting bull.

“Stronger for longer inflation will force interest rates higher for longer than we had previously expected,” Mr Kerr said.

Closer to home, ANZ economists have revised inflation forecasts sighting the evidence of persistence in inflationary pressures throughout the US and New Zealand as a key risk.

For the September quarter, ANZ economists view inflation rising 1.6% from June pushing annual inflation to breach the 7.0% mark.

ANZ Senior Economist Catherine Birch said an upside surprise to inflation would be problematic for the RBA, after it slowed the pace of hiking in October.

“The monthly CPI indicator, ex-volatile items - fruit, vegetables and fuel - accelerated from 5.5% year-on-year in June to 6.2% in August,” Ms Birch said.

“While not directly comparable with core inflation measures in the quarterly CPI, it does indicate that there is momentum in underlying inflation.

“A 25 basis point cash rate hike in November still seems the most likely outcome in this case.”

See more: When is inflation expected to peak?

Which basket categories will be hit the most in the September quarter?

ANZ economists forecast food prices to rise another 2.8% in the September quarter, adding 0.5% to headline inflation.

This comes as data from UBS as reported by the Australian Financial Review revealed in the September quarter fresh food prices have increased 9%, while dry goods increased 7.7%.

“The current flooding will have an inflationary impact in quarter-four and into 2023,” Ms Birch said.

“In the near term, the reduction in food production and disruption to supply chains - road closures affecting transport, people not being able to work - will constrain supply and push up prices."

Federal Treasurer Jim Chalmers warned Aussie consumers earlier this week that grocery price pain at Christmas time could be a very real possibility. 

Further, NAB's latest Consumer Sentiment Survey revealed in the lead up to Christmas Aussies can expect to fork out an extra $59 a week on groceries, $35 more a week on fuel, and $76 more on gas, electricity, and water bills. 

Alongside food prices, ANZ economists forecast utility prices to form a key element of housing’s 0.7% contribution to headline inflation.

“Regulated retail utilities prices rose across most states and territories from 1 July, but the effect of electricity price increases will be staggered due to cost-of-living support payments by some state governments,” Ms Birch said.

“As such, we are forecasting utilities prices - electricity, gas and water - to rise around 4.0% in the September quarter, with a larger increase to follow in quarter-four.”


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