Latest / Best of Business / Liam Dann: NZ Herald Business Editor on the annual inflation rate rising to 3.1%

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Liam Dann: NZ Herald Business Editor on the annual inflation rate rising to 3.1% · Best of Business

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  Speaker 1: You're listening to a podcast from News Talk ZB Follow
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  Speaker 2: Inflation has risen again. The CPI has risen, Consumers Price
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  Speaker 2: Index has risen three point one percent in the year
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  Speaker 2: to December to two that over. We're joined now by
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  Speaker 2: The New Zealand Herald's Business editor at large, Lim Dan
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  Speaker 2: can I Limb, Hey, John, So this is above the
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  Speaker 2: Reserve Bank's target, granted zero point one percent over. But
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  Speaker 2: how much should we read into this?
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  Speaker 3: Yeah, look, it's not great because it's at the worst
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  Speaker 3: at the worst end of I guess what economists are expecting.
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  Speaker 3: And if you go back to the Reserve banks forecast
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  Speaker 3: that they made at their last statement in November, they
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  Speaker 3: were only looking at two point seven so there were
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  Speaker 3: hopes that it was coming down and it hasn't. So
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  Speaker 3: you know, on face value, that's not good. It's that
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  Speaker 3: there are some caveats around that there's there's some fluctuating
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  Speaker 3: stuff around like air travel and Texel prices and things
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  Speaker 3: which the Reserve Bank is allowed to look through, so
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  Speaker 3: they'll look at sort of core inflation and say, well,
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  Speaker 3: it's not that bad and there's still hopes that we're
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  Speaker 3: seeing it at the overall trenders that it should come
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  Speaker 3: down a bit, but the fact that's staying up near
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  Speaker 3: that three percent end, it's a bit of a worry
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  Speaker 3: because it suggests that, you know, inflation is more stubborn
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  Speaker 3: than we'd hoped, and that might mean that interest rates
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  Speaker 3: go up sooner than anyone with a mortgage you'll be
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  Speaker 3: hoping anyway, that's for sure.
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  Speaker 2: I was going to ask you that a couple of
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  Speaker 2: things about about the Reserve Bank. I'll get back to
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  Speaker 2: interest rates. But what does it say? What does it
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  Speaker 2: say about the Reserve Bank's forecasting?
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  Speaker 3: Well, it's tough for the Reserve Bank because they, you know,
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  Speaker 3: unlike the economists who can move their forecasts along, you know,
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  Speaker 3: every time they get new data or whatever. I think,
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  Speaker 3: you know, the Reserve Bank makes a forecast at a
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  Speaker 3: certain point in time, So November it's a fair way out.
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  Speaker 3: I think it tells you that you know you've got there,
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  Speaker 3: but weary about all economic forecasting out past two or
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  Speaker 3: three months because things can change. But yeah, look, you
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  Speaker 3: know that undershot that one, and it probably makes life
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  Speaker 3: a little bit harder. We're just waiting to get some
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  Speaker 3: market reaction and see what happens there in terms of
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  Speaker 3: the you know, how the financial markets price everything.
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  Speaker 2: What's your anticipation there in terms of how the market
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  Speaker 2: will react.
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  Speaker 3: Well, you know, there was already expectations that was going
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  Speaker 3: to be higher than that that two point seven the
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  Speaker 3: Reserve Bank we're expecting to see. I think one of
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  Speaker 3: the banks had had three point one maybe, I think
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  Speaker 3: it was ASB had three point one penciled in for
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  Speaker 3: their forecast. But yeah, it'll put a bit of pressure.
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  Speaker 3: So the financial markets are already pricing in two rate
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  Speaker 3: hikes later this year, and the Reserve Bank had sort
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  Speaker 3: of indicated the wouldn't be until early twenty seven that
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  Speaker 3: they would be looking at liking again. But I think,
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  Speaker 3: if you know, you have to assume that at this
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  Speaker 3: stage that that looks like it might be coming coming forward.
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  Speaker 3: I mean, there's still the economy. Although we talk a
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  Speaker 3: lot about the recovery, the economy has still got you know,
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  Speaker 3: what they call spare capacity. It's still not running at
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  Speaker 3: full speed. So that means they economists to expect that
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  Speaker 3: domestic non tradable inflation is supposed to keep tracking down,
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  Speaker 3: and some of that is sort of priced in around
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  Speaker 3: what they see with wages and employment in the labor
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  Speaker 3: market and stuff like that. But the tradeable stuff has
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  Speaker 3: stayed more elevated. And you know, while it's good news
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  Speaker 3: that we're still getting strong gary and beef prices, you've
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  Speaker 3: only got a you know, anyone doing their weekly shop,
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  Speaker 3: well know that food prices haven't come off massively, and
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  Speaker 3: power prices and rates are still sort of the culprits
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  Speaker 3: over the over the years as a whole. You know
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  Speaker 3: that they're sort of pushing up the rate as well.
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  Speaker 3: So there's some stubborn stuff here that we don't have
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  Speaker 3: much control over. That is just going to be a
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  Speaker 3: bit of a dawn on the side, I think for
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  Speaker 3: the economic recovery.
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  Speaker 2: Because I mean, I'm interested to know what you think
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  Speaker 2: the Reserve Bank will do. But it's interesting the timing
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  Speaker 2: given them a few days ago that A and Z
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  Speaker 2: was was being was receiving a lot of flak for
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  Speaker 2: the increase in its floating rate.
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  Speaker 3: Yeah, that's right. So I guess that probably reflects the
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  Speaker 3: tecks the markets pricing some of that in. You know,
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  Speaker 3: we know there's actually a lot of New Zealanders stayed
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  Speaker 3: on floating rates for longer or short term rates in
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  Speaker 3: the hope of getting it, getting the best best, the
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  Speaker 3: best fixed rate when when things were absolutely at the low.
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  Speaker 3: I think that would you know, suggest that we've had
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  Speaker 3: that moment or that that moment is now and if
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  Speaker 3: you're going to going to fix the longer term, you'd
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  Speaker 3: want to do it. You know. Look, look, look, things
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  Speaker 3: are always changing, but in things like oil prices are
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  Speaker 3: very volatile. It's a very volatile global world. But it
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  Speaker 3: just looks like we're in a period of where that
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  Speaker 3: sort of inflationary pressure is hanging around. And when you
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  Speaker 3: look at you know what that means for the economic recovery,
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  Speaker 3: it just sort of puts a lid on it. It
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  Speaker 3: means that there's only so fast we can grow as
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  Speaker 3: an economy before rates start going up, and that effectively
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  Speaker 3: calls time on sort of how much growth we can
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  Speaker 3: handle before inflation gets out of control again. So that's
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  Speaker 3: that goes to some structural problems in the economy that
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  Speaker 3: I know we heard the Prominence to talk about, you know,
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  Speaker 3: long term fixes in his speech on Monday. I think
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  Speaker 3: he understands that, but you know, just relying on the
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  Speaker 3: sicklical economic recovery, which you'd expect to come round with
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  Speaker 3: good dairy prices and all that sort of stuff. Lower
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  Speaker 3: interest rates isn't probably going to be enough to sort
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  Speaker 3: of solve all New Zealand's economic problems. I think it's
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  Speaker 3: that's clear.
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  Speaker 2: How much have banks or our banks contributing to this result?
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  Speaker 2: You mean in terms of interest.
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  Speaker 3: Well, yeah, I'm.
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  Speaker 2: Not could be accused of't it.
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  Speaker 3: Yeah. Look, always people are going to be looking at
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  Speaker 3: banks and the margins that they charge and the and
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  Speaker 3: you know, and the profits and the and I sort
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  Speaker 3: of I won't wade in on it, but I think
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  Speaker 3: it's always an issue that's uput as bank. You know,
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  Speaker 3: like you're obviously we need you know, we need the
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  Speaker 3: bank to be profitable. Could they be pushing harder to
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  Speaker 3: offer a better rates, Well yes, But I guess the
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  Speaker 3: flip side is that there's there's a whole bunch of
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  Speaker 3: savers out there and if they did that, that might
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  Speaker 3: mean not offering such good deposit rates to savers. Yeah. Look,
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  Speaker 3: I'm of the view that they could be more generous
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  Speaker 3: with their margins, which is sort of something you hear
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  Speaker 3: affected broadly from the Reserve Bank, or certainly you did
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  Speaker 3: in Adrian ors time. But you know they run run
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  Speaker 3: out of Australia. We sold our banks so there's not
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  Speaker 3: not all that much control in this country over that.
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  Speaker 2: How are you and nice to talk to you. Thanks
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  Speaker 2: very much, good stuff, brilliant New Zealander Herald's Business editor
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  Speaker 2: at large, Liam Den.
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