We expect another 25bp hike at Thursday’s OCR review, with a slightly more subdued assessment compared to the June Monetary Policy Statement.  Since June the economic news has generally been on the weaker side of expectations – not hugely so, but the shortfalls have been widespread. In terms of the major data releases (which we can compare directly to the RBNZ’s forecasts), two have undershot slightly and one was stronger.

There were lumps and bumps on either side: an increase in tobacco excise added 0.2% to inflation, while a fall in food prices knocked a similar amount off the index. But the underlying story is clear. Inflation has been hobbled by the combined effect of last year’s recession and the strong rebound in the exchange rate.

This week we have learnt that in line with our own warnings and the feelings of many people out there the recovery in the New Zealand economy is proving to be a very lacklustre affair which is leaving many people scratching their heads wondering if this is as good as it gets. 

Our monthly survey of the confidence of Weekly Overview readers has produced a decline for the third month in a row with sentiment now at the level of April last year. Only a net 2% of the 542 respondents expect the economy will get better over the coming year down from 26% in June and a peak of 56% in September last year.