Latest / Best of Business / Kim Mundy: ASB acting chief economist on ASB's latest forecast indicating inflation could stay up for the rest of the year

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Kim Mundy: ASB acting chief economist on ASB's latest forecast indicating inflation could stay up for the rest of the year · Best of Business

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  Speaker 1: You're listening to a podcast from Newstalk ZB. Follow this
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• 0:17
  Speaker 1: outlook for our economy this Monday morning for you comes
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  Speaker 1: from the ASB. They see a bit of a slowdown
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  Speaker 1: in the current quarter, which is Q3, of course. We
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  Speaker 1: are back in Q4. They also see two hikes from
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  Speaker 1: the Reserve Bank to finish the year and possibly two
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  Speaker 1: more next year to settle. I think at about 3.75,
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  Speaker 1: that would be. Kim Mundey is the ASB acting chief
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  Speaker 1: economist and is with us. Kim, morning to you.
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  Speaker 2: Good morning.
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  Speaker 1: And reading what you wrote down, I couldn't find a
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  Speaker 1: number for Q3. What are you calling for Q3 GDP?
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  Speaker 2: 0.4% for the quarter.
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  Speaker 1: So 0.2% to 0.4%. What do you think in Q4?
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  Speaker 1: Any ideas?
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  Speaker 2: At this stage, we've got 0.6%. So you are starting
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  Speaker 2: to see that recovery come through in those quarterly numbers
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  Speaker 2: towards the end of the year. Okay.
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  Speaker 1: As far as inflation is concerned... How much of it's oil,
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  Speaker 1: therefore nothing we can really do about it, versus your
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  Speaker 1: council rates and how much of that feeds into prices
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  Speaker 1: and how much does that worry us?
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  Speaker 2: Well, that's the question that we're all asking ourselves at
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  Speaker 2: the moment. And in the here and now, what we're
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  Speaker 2: seeing in terms of high inflation is largely that tradable
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  Speaker 2: inflation and it's been driven by fuel. But it's also
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  Speaker 2: now likely to be a bit of a NZD story
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  Speaker 2: coming through more broadly as well. with the low Kiwi
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  Speaker 2: dollar making imports more generally more expensive. And we have
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  Speaker 2: been seeing some of the domestic inflation cooling, but it
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  Speaker 2: is still holding up and it is still above target.
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  Speaker 2: So the concern for us is if we do start
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  Speaker 2: to head into, say, an economic recovery, the one that
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  Speaker 2: we've all been waiting for, whether you also see the
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  Speaker 2: domestic side start to tighten as well. So that's why
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  Speaker 2: we think for the Reserve Bank, they're still wanting to
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  Speaker 2: be moving the OCR back towards more neutral levels.
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  Speaker 1: OK, so you said a couple before Christmas, maybe a
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  Speaker 1: couple into the new year as well.
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  Speaker 2: Yeah, so our central forecast is two more. So that
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  Speaker 2: would leave us at 3.25% by the end of the year.
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  Speaker 2: That's kind of where we estimate that neutral level is.
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  Speaker 2: But I think the risk for us is if inflation
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  Speaker 2: expectations start to lift off the back of what we've
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  Speaker 2: seen in oil markets, the fact that inflation is now
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  Speaker 2: looking like it'll be higher for longer. So you've got
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  Speaker 2: that more prolonged impact hitting businesses and consumers. So if
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  Speaker 2: we do see inflation expectations start to move higher, then
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  Speaker 2: that just raises the risk that the OCR might need
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  Speaker 2: to go higher over 2027.
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  Speaker 1: These job numbers I don't like the look of. We
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  Speaker 1: seem to be sort of moving the forecast for a
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  Speaker 1: turnaround out further and further, don't we? I mean, what
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  Speaker 1: are you saying now? Mid fives by the end of 27.
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  Speaker 1: That's a long time in the fives, isn't it?
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  Speaker 2: Yeah, it is. It also partly reflects the fact that
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  Speaker 2: we think Nairu to the non-accelerating inflation rate of unemployment
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  Speaker 2: is probably higher than our previous sort of level. So
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  Speaker 2: there's a bit of a technical adjustment going on in
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  Speaker 2: the back there. But when you do have businesses facing
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  Speaker 2: more uncertainty now, higher costs than we had previously expected,
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  Speaker 2: that's likely to flow through into labour demand. And then
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  Speaker 2: we also think that once firms do start to get
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  Speaker 2: a bit more confident and do look at hiring, they're
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  Speaker 2: actually more likely to lift the hours of current workers
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  Speaker 2: before they start to hire new workers. So that will
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  Speaker 2: also just delay that reduction in the unemployment rate.
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  Speaker 1: And this is all against the backdrop. We're seeing nothing
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  Speaker 1: in housing and I don't see anything in immigration in
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  Speaker 1: terms of, you know, they're not going to flood back in.
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  Speaker 2: Exactly. And so simply put, it's not private consumption that's
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  Speaker 2: driving unemployment. the economic recovery at the moment it's the
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  Speaker 2: export sector and given the new sort of challenges facing
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  Speaker 2: households in terms of costs at the pump again the
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  Speaker 2: fact that the labour market's likely to take longer to
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  Speaker 2: recover the fact that as you say house prices aren't
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  Speaker 2: moving and we don't think that household consumption recovery is
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  Speaker 2: going to sort of become apparent until 2027.
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  Speaker 1: Nice to talk to you, Kim. You go well this week.
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  Speaker 1: Kim Mundy, who's the ASB acting chief economist, is at
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  Speaker 1: the pump yesterday, 3.70 a litre. By the way, she
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  Speaker 1: said the NZD story. She refers to the dollar at
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  Speaker 1: what looks dangerously close to becoming a seven for the
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  Speaker 1: Australian swap. So Jamie Gray over the weekend in the
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  Speaker 1: Herald do read it. He explains, because a lot of
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  Speaker 1: you ask, and I mean, there's a myriad of different
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  Speaker 1: answers as to why it is what it is, the
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  Speaker 1: New Zealand dollar, but he explains it very well as
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  Speaker 1: to why we are where we are at the moment.