New Zealand’s inflation surged to a 30-year high of 5.9% in Q4. And while Australia’s 3.5% was much lower, it is well above the RBA’s 2-3% target band. Trimmed mean inflation is about one percentage lower, but business surveys suggest it will rise further in Australia. As such, it won’t be long before underlying inflation is above the top end of the central banks’ targets in both countries. Along with the tightness in labour markets, strong inflation is why we expect both central banks to continue tightening policy in the months ahead. In Australia, we expect the RBA to end its asset purchase programme at its February meeting and hike rates for the first time since the start of the pandemic in August. The RBNZ has already lifted its policy rate by 50bp and we have pencilled in a further 125 basis points of rate hikes by August this year.
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