The stubborn resilience of the economy has prompted the country's biggest bank to forecast even more aggressive interest rate rises from the Reserve Bank (RBNZ).
ANZ economists are picking an extra three rises of 25 basis points in the official cash rate (OCR) at the February, April, and May monetary reviews to a peak of 4.75 percent.
It was previously picking a peak of 4 percent at the end of this year.
Chief economist Sharon Zollner said recent data, including the surprisingly strong second quarter growth numbers and the latest reading from the manufacturing sector confirmed more action was needed to cool the economy.
"The economy is not rolling over, with the tight labour market and strong wage growth partially offsetting the impact of higher interest rates. The low New Zealand dollar is also a meaningful offset to current monetary conditions."
Zollner said it was not that they were "bullish" about the growth outlook, but the need to tackle inflation trumped all.
"Risks are firmly tilted towards inflation and inflation expectations not falling as far nor as fast as is required to get real interest rates to a sustainably contractionary level, meaning more work for the OCR to do."
Cooling needed
Zollner said the RBNZ would want to see higher unemployment, somewhere around 5 percent, and falls in household spending to cool demand, thus creating slack in the economy.
But although the RBNZ has been consistently raising the OCR since last October, taking it from 0.25 percent to 3 percent through a series of hefty 50 basis point rate rises, Zollner said it was questionable whether those rises were working.
"All up, while the growth profile is not strong, it's not clear that beyond the housing market, rate hikes delivered so far are succeeding in opening up much spare capacity in the economy. That requires meaningfully lower household spending."
She said with full employment and strong wage growth people were coping with higher rates.
Zollner accepted ANZ's call could be off the mark and more rises might not be needed because of an easing of supply chain disruptions, an influx of migrants easing labour shortages, or consumer spending returning to more normal pre-Covid patterns.
But conversely slowing world growth or aggressive rate rises by the US Federal Reserve were risks to the upside.
She ruled out the prospect of cuts to the OCR any time soon.
RNZ
