SYDNEY--Anna Breman, the recently appointed governor of the Reserve Bank of New Zealand, has been keen to impress on financial markets and central bank observers that she is a policy hawk and won't tolerate inflation above target for too long.
It is reasonable to assume, therefore, that Tuesday's report showing inflation at a two-year high would be unsettling.
However, she has some breathing room. Economists suggest she can afford to move cautiously, balancing the needs of an economy ripe for recovery with a clear desire to get inflation under control over a reasonably short time frame.
Annual inflation jumped to 4.1% in the second quarter, well up from 3.1% in the first quarter. That's more than twice the 2% midpoint of the RBNZ's target band.
Still, the pickup in price pressures across the economy in the quarter wasn't particularly broad-based, with measures of core inflation still well behaved, said Abhijit Surya, senior economist at Capital Economics.
"So there's not a strong case for the RBNZ to hike rates aggressively," he added.
The rise in the headline gauge can be pinned almost entirely on tradables inflation, which, fanned by oil prices, jumped from 2.5% to a three-year high of 4.9%, he said.
"Despite the ugly reading for headline inflation, the numbers won't instill a sense of urgency in the RBNZ to deliver back-to-back hikes," Surya said.
The RBNZ began raising interest rates earlier this month, increasing the official cash rate from 2.25% to 2.50%. The move was followed by a speech from Paul Conway, the bank's chief economist, who warned that firms appear eager to pass on rising costs quickly.
Still, calm should prevail.
The inflation jump "is overwhelmingly an imported-energy story," said Sunny Nguyen, an economist at Moody's Analytics.
Beneath the spike, the domestic picture is more encouraging than the headline suggests, she added.
Non-tradable inflation eased to 3.4% year-over-year, and core measures excluding food and energy held at 2.5% on-year, "showing little sign that the fuel shock is bleeding into other prices," Nguyen said.
"The data affords patience for the Reserve Bank of New Zealand," she said.
Write to James Glynn at james.glynn@wsj.com
(END) Dow Jones Newswires
July 20, 2026 22:34 ET (02:34 GMT)
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