Inflation data is tipped to reveal an overall rise in prices in the March quarter, but economists are at odds over the fate of interest rates.
Statistics New Zealand will release the Consumer Price Index (CPI) for the three months ending March tomorrow.
Lifts in food and petrol prices are picked to help push the rate of inflation above the Reserve Bank's forecast of 0.3 per cent.
Westpac economists predict a much stronger 0.7 per cent rise in inflation and have backed market expectations that the central bank will raise the Official Cash Rate (OCR) in June.
But ANZ economists expect the Reserve Bank will sit on interest rates until the second half of the year. First-quarter inflation was likely to be 0.5 per cent and take annual inflation to 2.2 per cent, they said, with lifts in education fees and rents contributing to inflationary pressure.
But the CPI result on its own may not be enough to force a June jump in the OCR, they said.
Weak retail trade statistics for February – core retailing dropped 0.9 per cent or $35m – indicated retailers may have cut prices by more than expected. Activity in the residential construction sector had been weak, while an anaemic labour market was keeping labour cost pressure contained.
"Our monthly inflation gauge rose strongly in January and February but dipped in March," ANZ said. "While we expect a climbing trajectory for inflation over 2010, the patchiness of the recovery is likely to contribute to a more patient policy response.
"More concrete signs of economic recovery becoming established are likely to be another prerequisite for the Reserve Bank moving, but we believe they will not be evident until the second half of 2010."
Westpac economists said their bullish forecast reflected "inconsequential quarterly volatility, rather than a generalised lift in inflation".
Food prices rose about 1 per cent in the quarter, and petrol prices 3.6 per cent – but neither increase was expected to be long-lasting or important.
Construction cost inflation jumped to 1 per cent after five subdued quarters, which was higher than Reserve Bank expectations and would be food for thought for the central bank, they said. Construction costs tended to be one quarter behind house prices – which rose rapidly last year, and anecdotal evidence pointed to rising costs.
"We are definitely plumping for a June hike, because it is highly likely that the Reserve Bank will receive an upside surprise on CPI." Inflation for the three months ending June was likely to be 0.3 per cent – balancing out the first-quarter result – with the effects of the strong kiwi dollar last year still evident and non-tradable inflation still low, they said.
But the impact of the emissions trading scheme and the signalled rise in GST later this year would probably push annual total inflation closer to 5 per cent for a year or so.