Human error correction doubles inflation

After discovering a ‘human error’ Statistics New Zealand has adjusted the inflation rate for the year to September, doubling it to 0.4%.

Stuff: Rego error at Statistics NZ doubles inflation, complicates life for Reserve Bank

Human error has been blamed for a mistake in official figures about the cost of living, creating a new headache for the Reserve Bank on whether to cut interest rates.

On Monday morning Statistics New Zealand blamed a “manual processing error” for its decision to correct its estimate of the increase in inflation in the year to September, from 0.2 per cent to 0.4 per cent.

The mistake related to how much the agency believed the cost of licensing a small car – commonly referred to as registration or ‘rego’ – had dropped in the September quarter.

I’m surprised that one mistake on one class of car registration makes that much difference.

This change may complicate this weeks Official cash rate annoiuncement.

Although the correction may appear minor, and inflation remains below the official target, it adds weight to the arguments against the Reserve Bank lowering the official cash rate (OCR) on Thursday to a new all time low of 1.75 per cent.

Most bank economists were already questioning the need for a further cut even before the correction was announced.

“I still think the Reserve Bank shouldn’t be cutting rates,” Bagrie said.

“If it were me, I’d be biased towards holding [the OCR at 2 per cent]. But I think [the Reserve Bank’s] forward guidance has been so strong that they’re going to find it hard to step away [from cutting].

I’m not sure what difference it will make whether the OCR is lowered or not as banks have already indicated that mortgage rates are likely to go up anyway due to international rates.

 

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