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Paul Bloxham: HSBC chief economist on what recent inflation data means for the market · Best of Business

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  Speaker 1: You're listening to a podcast from news Talk zed B.
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  Speaker 1: Follow this and our wide range of podcasts now on iHeartRadio.
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  Speaker 2: And Paul Bloxham, hspec's chief economist, is with us.
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  Speaker 3: Hello, Paul good eight.
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  Speaker 2: What do you make of our inflation print yesterday?
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  Speaker 3: Well, I think that it was a little bit lower
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  Speaker 3: than the market had expected, which is a positive. So
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  Speaker 3: you know, it's a little bit below where the market
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  Speaker 3: was fearful and a touch above where the RBNZ was forecasting.
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  Speaker 3: I think it still leaves the door open for the
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  Speaker 3: rben Z to deliver a little bit more easy cut
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  Speaker 3: their policy rate, and that's our central case. We think
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  Speaker 3: at their next meeting they're likely to be able to
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  Speaker 3: convince themselves that inflation still contained enough to allow them
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  Speaker 3: to lower interest rates a bit further. But I mean,
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  Speaker 3: we've got to keep in mind also it has picked
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  Speaker 3: up a little bit. It's, you know, sitting at two
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  Speaker 3: point seven, it's up a little bit from the low
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  Speaker 3: point it had reached and so on. So we think
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  Speaker 3: they'll cut again, but we don't think there's going to
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  Speaker 3: be a lot more cuts to come. I mean, we
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  Speaker 3: think the RBENZ is getting nearer to the end of
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  Speaker 3: its easing phase.
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  Speaker 2: See John Key, former Prime Minister, over the weekend called
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  Speaker 2: for one hundred basis points and cuts. What do you
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  Speaker 2: think of that?
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  Speaker 3: Well, I think the inflation being still above the midpoint
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  Speaker 3: of the target band and actually picking up a little
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  Speaker 3: bit recently means that we need to be careful about
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  Speaker 3: how much more easing is delivered. I think, you know,
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  Speaker 3: I think you'd want to say, well, the rbnz's targets
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  Speaker 3: one through three percent, they target try to get a
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  Speaker 3: two percent and two percent inflation consistently, and they're sitting
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  Speaker 3: at two point seven, so it's not convincing. I don't
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  Speaker 3: think that they should be delivering a lot more easy rapidly.
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  Speaker 3: I think the growth story is a little bit more
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  Speaker 3: nuanced at the moment. Some of the timely indicators weakened
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  Speaker 3: a bit, but we're I mean, we're still of the
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  Speaker 3: view actually that New Zealand's got positives and factors that
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  Speaker 3: are going to lift growth. One of them is the
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  Speaker 3: fact that they've already cut interest rates by two hundred
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  Speaker 3: and twenty five basis points, and the other one is
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  Speaker 3: the dairy prices are high and that's boosting agricultural incomes
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  Speaker 3: and so on. So we think that's going to feed
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  Speaker 3: through to a still a continued lifting growth in New Zealand.
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  Speaker 3: And so I'm not sure the case is strong for
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  Speaker 3: a substantial delivery of lots of cuts from here.
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  Speaker 2: You don't buy the argument that the inflation that we're
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  Speaker 2: seeing at the moment is very much temporary and will
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  Speaker 2: fall back later on there by justifying the cuts.
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  Speaker 1: No.
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  Speaker 3: I think if you look at the components of what's
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  Speaker 3: going on with inflation, you've still got non tradables inflation
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  Speaker 3: that's holding up reasonably well. So the domestic part of
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  Speaker 3: inflation that's holding up reasonably well. And although you know
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  Speaker 3: that the pickup you saw in the actual print for
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  Speaker 3: the quarter was mostly about food prices, so that might
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  Speaker 3: prove to be temporary, I think you'd still be a
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  Speaker 3: bit cautious about whether you'd be convinced that inflation was
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  Speaker 3: going to continue to fall towards towards two percent. I
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  Speaker 3: think the other thing is this is not the only
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  Speaker 3: survey that you can look at. You can look at
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  Speaker 3: the measures of inflation expectations, the surveys where they ask
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  Speaker 3: people what they think inflation's going to be in the future,
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  Speaker 3: and those have all started to pick up a little
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  Speaker 3: bit as well, So I think there's enough indications to
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  Speaker 3: suggest that inflation's not back at the target quite yet.
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  Speaker 3: It's still in the upper part of the target band,
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  Speaker 3: and it would, I think, mean that you have to
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  Speaker 3: be cautious about how much more monetary is and you deliver,
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  Speaker 3: or at least how quickly you deliver it. So I
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  Speaker 3: think they're going to get over the line for another cut,
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  Speaker 3: but I think taking it a bit more carefully and
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  Speaker 3: a bit more slowly at this point is important because
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  Speaker 3: inflation is not is in the upper part of the
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  Speaker 3: target batfair point.
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  Speaker 2: Now to the RBA, we were a little bit surprised
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  Speaker 2: when it held the rates a couple of weeks ago,
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  Speaker 2: but now we've got the meeting minutes and it's shit
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  Speaker 2: a little bit more light.
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  Speaker 3: Right.
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  Speaker 2: This comes down to the employment rate, doesn't it.
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  Speaker 3: That's right? So, I mean, I think the RBA on
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  Speaker 3: the day even they was a surprise for the market.
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  Speaker 3: But they said, and the Governor had said at the
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  Speaker 3: time that it's about timing rather than direction. I she
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  Speaker 3: was saying the board wasn't quite convinced that they should
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  Speaker 3: deliver a rate cut at that point in July, but
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  Speaker 3: they still expect that they'll be lowering interest rates further,
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  Speaker 3: and I think the minutes again just give a bit
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  Speaker 3: more clarity around that was the discussion that was had.
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  Speaker 3: It's not that they don't think that they need to
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  Speaker 3: do a bit more easy, it's just that they want
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  Speaker 3: to take a cautious approach to delivering that easing. And
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  Speaker 3: I think the other thing to keep in mind is
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  Speaker 3: since then, we've had labor market numbers that were softer,
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  Speaker 3: that were weaker, the unemployment rate actually rose. So I
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  Speaker 3: think we're likely to see as well that the RBA
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  Speaker 3: probably will probably deliver another rate cut come August as
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  Speaker 3: a part of their cautious approach to delivering easing for
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  Speaker 3: the economy.
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  Speaker 2: Paul, I have a text question for you, says heither,
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  Speaker 2: could you please ask Paul Bloxham, with the New Zealand
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  Speaker 2: we'll ever get the rock star economy back?
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  Speaker 3: Oh, that's a great question, And look, I would hope
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  Speaker 3: like I hope, so, I mean, of course it is.
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  Speaker 3: I mean it would be great if New Zealand could
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  Speaker 3: return to that former glory that we described. I described
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  Speaker 3: it back in twenty fourteens, is over ten years ago now,
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  Speaker 3: that you could get there, and I think the main
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  Speaker 3: things you know, you need to look for. Yes, the
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  Speaker 3: dairy story was really strong back then and that was
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  Speaker 3: that's one that's turned more positive more recently. That the
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  Speaker 3: migration story was strong as well, and that's something you
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  Speaker 3: need to look at as well. But more more importantly,
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  Speaker 3: I guess you need to look at the reform agenda
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  Speaker 3: and making sure that you can attract more foreign investment,
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  Speaker 3: and I think that's what policymakers asked. I think to
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  Speaker 3: look more, you know, taking a bigger, a stronger approach
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  Speaker 3: towards and if that starts to deliver, it could really
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  Speaker 3: lift New Zealand's for US prospects. We're very optimistic. I
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  Speaker 3: think I've said this to you before that you know,
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  Speaker 3: we are at the top of consensus in terms of
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  Speaker 3: thinking about New Zealand's growth for this year, and we
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  Speaker 3: think growth is likely to be in an upswing. Will
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  Speaker 3: it be a rock star? Well, we'll just have to see.
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  Speaker 2: Here's hoping. Paul. Thanks very much, as always, Paul Bloxhom
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  Speaker 2: HSPC Chief Economists.
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