Latest / The SME Stream / 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% · The SME Stream

• 0:06
  Speaker 1: You're listening to the Kerry Wood and Morning's podcast from
• 0:09
  Speaker 1: News Talks, he'd.
• 0:10
  Speaker 2: Be Inflash has risen again, the CPI has risen, Consumers
• 0:15
  Speaker 2: Price Index has risen big point one percent in the
• 0:19
  Speaker 2: year to December to two that over. We're joined now
• 0:22
  Speaker 2: by The New Zealand Herald's Business editor at large Lim
• 0:25
  Speaker 2: dan im Hey John. So this is above the Reserve
• 0:29
  Speaker 2: Bank's target, granted zero point one percent over. But how
• 0:33
  Speaker 2: much should we read into this?
• 0:35
  Speaker 3: Yeah, look, it's not great because it's at the worst
• 0:39
  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
• 0:45
  Speaker 3: that they made at their last statement in November, they
• 0:49
  Speaker 3: were only looking at two point seven so there were
• 0:51
  Speaker 3: hopes that it was coming down and it hasn't. So
• 0:55
  Speaker 3: you know, on face value, that's not good. It's that
• 1:00
  Speaker 3: there are some caveats around that there's there's some fluctuating
• 1:04
  Speaker 3: stuff around like air travel and Texel prices and things
• 1:09
  Speaker 3: which the Reserve Bank is allowed to look through, so
• 1:13
  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 is a bit of a
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  Speaker 3: worry because it suggests that, you know, inflation is more
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  Speaker 3: stubborn than we'd hoped, and that might mean that interest
• 1:33
  Speaker 3: rates go up sooner than anyone with a mortgage I'll
• 1:37
  Speaker 3: be hoping anyway, that's for sure.
• 1:38
  Speaker 2: I was going to ask you that a couple of
• 1:39
  Speaker 2: things about about the Reserve Bank. I'll get back to
• 1:41
  Speaker 2: interest rates. But what does it say? What does it
• 1:42
  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,
• 1:48
  Speaker 3: unlike the economists who can move their forecasts along, you know,
• 1:51
  Speaker 3: every time they get new data or whatever. I think,
• 1:56
  Speaker 3: you know, the Reserve Bank makes a forecast at a
• 1:58
  Speaker 3: certain point in time, So November it's a fair way out.
• 2:01
  Speaker 3: I think it tells you that, you know, you've got
• 2:03
  Speaker 3: bit wary about all economic forecasting out past two or
• 2:08
  Speaker 3: three months because things can change. But yeah, look, you
• 2:13
  Speaker 3: know that undershot that one, and it probably makes life
• 2:18
  Speaker 3: a little bit harder. We're just waiting to get some
• 2:20
  Speaker 3: market reaction and see what happens there. In terms of
• 2:23
  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
• 2:30
  Speaker 2: will react.
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  Speaker 3: Well, you know, there was already expectations that was going
• 2:34
  Speaker 3: to be higher than that that two point seven the
• 2:35
  Speaker 3: Reserve Bank we're expecting to see. I think one of
• 2:39
  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
• 2:47
  Speaker 3: their forecast. But yeah, it'll put a bit of pressure.
• 2:50
  Speaker 3: So the financial markets are already pricing in two rate
• 2:55
  Speaker 3: hikes later this year, and the Reserve Bank had sort
• 2:58
  Speaker 3: of indicated the wouldn't be until early twenty seven that
• 3:01
  Speaker 3: they would be looking at hiking again. But I think,
• 3:05
  Speaker 3: if you know, you have to assume that at this stage.
• 3:08
  Speaker 3: But that looks like it might be coming forward. I mean,
• 3:11
  Speaker 3: there's still the economy. Although we talk a lot about
• 3:13
  Speaker 3: the recovery, the economy has still got you know, what
• 3:17
  Speaker 3: they call spare capacity. It's still not running at full speed.
• 3:19
  Speaker 3: So that means they economists to expect that domestic non
• 3:24
  Speaker 3: tradeable inflation is supposed to keep tracking down, and some
• 3:30
  Speaker 3: of that is sort of priced in around what they
• 3:34
  Speaker 3: see with wages and employment in the labor market and
• 3:36
  Speaker 3: stuff like that. But the tradeable stuff has stayed more elevated.
• 3:40
  Speaker 3: And you know, while it's good news that we're still
• 3:42
  Speaker 3: getting strong gary and beef prices, you've only got a
• 3:44
  Speaker 3: you know, anyone doing their weekly shop, well know that
• 3:47
  Speaker 3: food prices haven't come off massively, and power prices and
• 3:53
  Speaker 3: rates are still sort of the culprits over the over
• 3:55
  Speaker 3: the years as a whole. You know that they're sort
• 3:57
  Speaker 3: of pushing up the rate as well. So there's some
• 4:00
  Speaker 3: stubborn stuff here that we don't have much control over
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  Speaker 3: that is just going to be a bit of a
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  Speaker 3: thorn and a side, I think for the economic recovery.
• 4:08
  Speaker 2: Because I mean what I'm interested to know what you
• 4:10
  Speaker 2: think the Reserve Bank will do. But it's interesting the
• 4:12
  Speaker 2: timing given them a few days ago that A and
• 4:14
  Speaker 2: Z was was being was receiving a lot of flax
• 4:17
  Speaker 2: for the increase in its floating rate.
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  Speaker 3: Yeah, that's right. So I guess that probably reflects flects
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  Speaker 3: the markets pricing some of that in. You know, we
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  Speaker 3: know there's actually a lot of New Zealanders stayed on
• 4:30
  Speaker 3: floating rates for longer or short term rates and the
• 4:34
  Speaker 3: hope of getting it getting the best best, the best
• 4:38
  Speaker 3: 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
• 4:46
  Speaker 3: you're going to going to fix the longer term, you'd
• 4:48
  Speaker 3: want to do it. You know, Look, look, look, things
• 4:52
  Speaker 3: are always changing, but in things like you know, oil
• 4:56
  Speaker 3: prices are very volatile. It's a very volatile global world.
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  Speaker 3: But it just looks like we're in a period of
• 5:03
  Speaker 3: where that sort of inflationary pressure is hang around and
• 5:08
  Speaker 3: when you look at you know what that means for
• 5:10
  Speaker 3: the economic recovery, it just sort of puts a lid
• 5:12
  Speaker 3: on it. It means that there's only so fast we
• 5:14
  Speaker 3: can grow as an economy before rates start going up,
• 5:17
  Speaker 3: and that effectively calls time on on sort of how
• 5:21
  Speaker 3: much growth we can handle before inflation gets out of
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  Speaker 3: control again. So that's that's that goes to some structural
• 5:26
  Speaker 3: problems in the economy that I know we heard the
• 5:29
  Speaker 3: Prominence to talk about, you know, long term fixes in
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  Speaker 3: his speech on Monday. I think he understands that, but
• 5:35
  Speaker 3: you know, just relying on the cyclical economic recovery, which
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  Speaker 3: you'd expect to come around with good dairy prices and
• 5:43
  Speaker 3: all that sort of stuff. Lower interest rates isn't probably
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  Speaker 3: going to be enough to sort of solve all New
• 5:49
  Speaker 3: Zealand's economic problems. I think it's 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: I mean in terms of interest Well, yeah, I'm not
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  Speaker 2: the z could could be accused ofn't it.
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  Speaker 3: Yeah. Look, look, always people are going to be looking
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  Speaker 3: at banks and the margins that they charge and the
• 6:14
  Speaker 3: and you know, and the profits, and I sort of
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  Speaker 3: I won't wade in on it, but I think it's
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  Speaker 3: always an issue that's uput as bank. You know, like
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  Speaker 3: you're obviously we need you know, we need the bank
• 6:28
  Speaker 3: to be profitable. Could they be pushing harder to offer
• 6:31
  Speaker 3: a better rates, Well yes, But I guess the flip
• 6:34
  Speaker 3: side is that there's there's a whole bunch of savers
• 6:36
  Speaker 3: out there and if they did that, that might mean
• 6:39
  Speaker 3: not offering such good deposit rates to savers. Yeah. Look,
• 6:45
  Speaker 3: I'm of the view that they could be more generous
• 6:48
  Speaker 3: with their margins, which is sort of something you're here
• 6:50
  Speaker 3: affected broadly from the Reserve Bank, or certainly you did
• 6:54
  Speaker 3: in Adrian Ors time. But you know, they run run
• 6:57
  Speaker 3: out of Australia. We sold our banks, so there's not
• 7:00
  Speaker 3: not all that much control in this country over.
• 7:02
  Speaker 2: That exactly howe you must to talk to you. Thanks
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  Speaker 2: very much, good stuff, brilliant New Zealand Herald's Business editor
• 7:08
  Speaker 2: at large, Liam Den.
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