Inflation may have peaked, but hefty rate rises and economic recession still loom large on the horizon.
Inflation numbers for the final three months of last year are out this week, with the consensus that consumer prices rose 1.3 percent for the quarter leaving the annual rate fractionally lower at 7.1 percent, optimistically short of the Reserve Bank's (RBNZ) November forecast of a 7.5 percent annual rate.
A significant drop in fuel prices in the final quarter, helped by a continuation of the government's fuel tax cuts, has been one positive but unexpectedly high food prices and the ever-present rise in household costs have offset that.
But ASB senior economist Mark Smith said a dig into the details would make for unpalatable reading.
"Underlying details will be alarming for the RBNZ, with annual non-tradable inflation expected to hit a new record high, core inflation rates close to, or at, multi-decade highs, and with the clear risk of increasingly widespread price increases."
He said domestic factors - known as non-tradables and including food, rents, and building costs - were increasingly the drivers of inflation as overseas influences, the tradables such as fuel, started to ease.
Big or bigger?
For the past year, central bankers have played up the "imported" factors to explain the strength and persistence of inflation, and justify the aggressive rate rises needed to get inflation back to the 2 percent target point.
The RBNZ signalled in November that it was ready for another jumbo-sized rise of 75 basis points for the official cash rate in February as Governor Adrian Orr said the central bank was ready to engineer a recession to cool inflation.
The closely followed quarterly Institute of Economic Research business survey showed activity slowing but businesses intending to keep raising prices because of rising costs, and continued struggles to find and retain staff.
ANZ chief economist Sharon Zollner said the RBNZ was between a "rock and a hard place."
"Activity measures [are] looking sickly, but [there's] no evidence emerging yet that that weakness has translated into lower inflation pressures," Zollner said.
"The Reserve Bank feels a sense of urgency to get inflation down to more acceptable levels before it becomes normalised."
ANZ was sticking with its forecast of another 75 basis point rise next month.
However, Kiwibank economists argued inflation looked to have peaked and should be back to the target zone by early next year, which along with a slowing economy meant that a 25 basis point OCR rise was more appropriate.
"We believe the RBNZ has gained enough traction with their rate hikes to date, and a terminal cash rate of 5 percent or lower is all that is required to meet the RBNZ's mandates."