The March consumer price index measure of inflation failed to provide the signs of an official cash rate cut next week the market was hoping for, ANZ senior economist Mark Smith said.
A steady stream of economists had started moving towards forecasting a rate cut for April 28, but now most are saying the April move is still ‘‘live'' but not guaranteed.
The latest forecast is for the OCR to be 1.75% by the fourth quarter of the year.
Quarterly inflation in March was 0.2% and annual inflation was 0.4%.
Mr Smith said despite the soft result for overall tradeable prices, the CPI report also provided a few more signs the disinflationary impact of past New Zealand dollar strength was abating.
Household contents and services rose 1.7%, motor vehicle prices rose 1.6% and there were some increases seen in tradeable groups that had been recording price falls recently.
‘‘Importantly, looking through the details suggest the stronger-than-expected result was not due to one or two surprises but was more broad-based.''
Government charges featured heavily. Tobacco prices rose 9.4%. Stripping out the impact of government charges and tobacco prices delivered quarterly inflation of 0.7% and the 1.9% annual result was fractionally below the inflation target mid-point of 2%, he said.
BNZ head of research Stephen Toplis said the first-quarter CPI should not change anyone's mind about the inflation outlook and what the Reserve Bank could and could not do about it.
‘‘We were tempted to use the phrase ‘flogging a dead horse'. But that would imply there's something dreadfully wrong with the horse. It's more like flogging a pokey little pony.''
The April rate cut had been left in the balance. Market pricing had responded to the CPI report by reducing the odds of such from slightly above to slightly below 30%. The market was still not convinced, he said.
March inflation gave the BNZ no cause to shy away from its view of a 0.25% cut occurring at the April 28 OCR review and another cut in June.
The question yet to be answered was whether March's CPI data ensured annual CPI inflation returned to 2% by 2017. It was doubtful, Mr Toplis said.
The BNZ put the odds of an April cut at 55%.
At a glance
•Quarterly inflation 0.2%, annual inflation 0.4%
•Government charges and tobacco excise rise main reason for rise
•April 28 OCR cut still in balance
•Doubtful inflation will return to 2% by next year
