(Bloomberg) -- New Zealand’s central bank is “hopeful” that inflation has peaked, even though it was higher than anyone expected in the third quarter, chief economist Paul Conway said.

The annual rate of 7.2% was “obviously too high” but “we expect to see inflationary pressures easing going forward” and “are hopeful that it has peaked,” Conway told a Commonwealth Bank Global Markets Conference in Sydney on Tuesday, according to an audio recording supplied by the Reserve Bank. The “very rapid tightening in monetary policy” is starting to have an effect and “there are early signs that the economy is starting to cool,” he said.

The RBNZ had expected inflation to slow to 6.4% from 7.3%, which was the highest rate in 32 years. Most economists and investors now expect the central bank to accelerate its tightening with a 75 basis-point hike next month, taking the Official Cash Rate to 4.25%.

Conway pointed to falling house prices as a sign of weaker demand, saying they are down about 10% in aggregate from their peak last year and some major centers have seen significantly larger declines in recent months.

“We’re sort of seeing a reverse wealth effect, which should work to slow down consumption,” he said. There are also “lots of signs” pointing to an upcoming “bust, or at least a significant slowdown, in construction activity.” 

Conway spoke of the considerable challenges the global economy is facing, “from financial market chaos to central banks sort of running low on ammunition and out of control public spending going forward.”

At the same time, he said the RBNZ underestimated the strength of imported price pressures, and the era in which globalization suppressed inflation may be coming to an end.  

“There’s talk and serious academic papers arguing that greater international inflationary pressure could be a theme going forward,” he said. “Hopefully not as extreme as what we’ve been witnessing over the last year or so, but that era of helpful tradables inflation may be coming to an end.” 

Conway said favorable demographics in some countries, and China being the “workshop for the world,” had contributed to low tradables inflation in recent decades, “but much of that is changing at the moment.” 

“In the first instance that’s because of the pandemic and associated supply shocks, but globalization is also changing, demographics are changing, and China isn’t the deflationary force that it once was,” he said.

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