US inflation hits 8.5% ahead of NZ interest rate decision

Inflation in the United States has reached a 40-year high of 8.5 per cent as central banks, including New Zealands Reserve Bank, grapple with decisions over how hard to fight to contain price rises.

The jump in US consumer prices was slightly above market expectations and was fuelled by increases in the price of fuel and food, which have been accelerating in price in the wake of Russias war on Ukraine.

The acceleration in the US consumer price index, which rose by 1.2 per cent in the month of March alone, appears to be cementing expectations that the US Federal Reserve will raise interest rates by 50 basis points in May.

New Zealands Reserve Bank will announce at 2pm how much it has decided to raise its official cash rate following its latest review of monetary policy.

Economists are divided over whether the central bank will raise rates by 25 basis points or by 50bp, with some describing it as a “coin toss” decision.

Bond market pricing is putting slightly higher odds on a 50bp rate hike, but some analysts are expressing doubts over whether a large hike will do much to address price rises caused by supply shortages due to the war on Ukraine.

Stats NZ is due to release its latest quarterly inflation data on Thursday next week.

Forecasters are expecting a sharp increase in inflation from the annual rate of 5.9 per cent recorded in its December-quarter figures.

Stats NZ reported on Wednesday that food prices were 7.6 per cent higher in March than a year ago.

The price of fruit and vegetables leapt 18 per cent and meat and fish were 8.7 per cent more expensive, with the price of other groceries growing at a slower pace.