Latest / Best of Business / Mark Smith: ASB senior economist on latest inflation figures

Transcript

Mark Smith: ASB senior economist on latest inflation figures · Best of Business

• 0:09
  Speaker 1: You're listening to a podcast from News Talk SEDB. Follow
• 0:12
  Speaker 1: this and our wide range of podcasts now on iHeartRadio. Right.
• 0:17
  Speaker 2: Inflation appears to be easing, although some costs are continuing
• 0:21
  Speaker 2: to search. The latest figures from Stats New Zealand show
• 0:24
  Speaker 2: petrol is fourteen point nine percent cheaper than a year ago,
• 0:28
  Speaker 2: and food prices rose one point two percent. Fruit and
• 0:31
  Speaker 2: veggie is eight point three percent cheaper, but olive oil
• 0:35
  Speaker 2: is fifty eight percent price here man is it?
• 0:38
  Speaker 1: Ever?
• 0:39
  Speaker 2: While butter, chocolate, biscuits and alcohol have also been getting dearer,
• 0:43
  Speaker 2: ASB Senior economist Mark Smith joins me. Now, good evening, Mark,
• 0:48
  Speaker 2: how are you doing?
• 0:49
  Speaker 3: Good evening? Good? Thanks?
• 0:50
  Speaker 2: How are you a bit of a mixed bag? There
• 0:51
  Speaker 2: isn't it? Some highs and lows? Yes? Are we seeing
• 0:55
  Speaker 2: though signs inflation is getting under control?
• 0:58
  Speaker 3: Yes, yeah, there are welcome signs of that happening. But
• 1:01
  Speaker 3: as you said, there's quite a lot of variation. But really,
• 1:04
  Speaker 3: what we've done says the general tendency for price increases
• 1:07
  Speaker 3: is slow and that is really encouraging. Two households have
• 1:11
  Speaker 3: really been under the cosh over the last few years.
• 1:14
  Speaker 2: So what are still the biggest drivers of inflation.
• 1:18
  Speaker 3: Well, really, when you look at it, you've got the
• 1:20
  Speaker 3: external environment. So, as you said, petrol prices fell in
• 1:24
  Speaker 3: the quarter, and that's likely to be a major contributed
• 1:28
  Speaker 3: towards falling external prices that we expect for the year,
• 1:31
  Speaker 3: so down around one and a half percent. But on
• 1:34
  Speaker 3: the other side, the domestic component of inflation remains elevated
• 1:37
  Speaker 3: at around five percent. Now, looking at those certain areas,
• 1:41
  Speaker 3: there are some welcome signs things like construction cost inflation
• 1:45
  Speaker 3: should sharply fall in the quarter, but unfortunately there are
• 1:48
  Speaker 3: a lot of cost increases. Things like local authority rates
• 1:52
  Speaker 3: and insurance will keep that domestic inflationent rate high.
• 1:55
  Speaker 2: Will they oc help ease any of this? I'm sort
• 1:58
  Speaker 2: of thinking about rents and things.
• 2:01
  Speaker 3: Really, the OCR is responding to the inflation rate rather
• 2:05
  Speaker 3: than the other way around. But what we are seeing
• 2:07
  Speaker 3: now is as me is calling inflation and pressures are
• 2:10
  Speaker 3: stunning the call, and as a result, then the OCR
• 2:13
  Speaker 3: is moving lower. Now at four point seventy five percent,
• 2:16
  Speaker 3: it's still pretty much on the tighter side of neutral,
• 2:20
  Speaker 3: which is around three to four percent, but encouragingly, it's
• 2:23
  Speaker 3: starting to move lower.
• 2:25
  Speaker 2: Okay, what do you think this means for the CPI
• 2:28
  Speaker 2: next Wednesday.
• 2:30
  Speaker 3: We expect a two point two percent an increase, but
• 2:33
  Speaker 3: as you said, there's quality of variation, but we do
• 2:36
  Speaker 3: expect signs there to really concern that the central tendscien
• 2:40
  Speaker 3: price increases is falling, core inflation is falling, and as
• 2:44
  Speaker 3: a result, the official cash rate needs to move lower.
• 2:46
  Speaker 2: From here, would you be happy with that two point
• 2:50
  Speaker 2: two percent increase? What would you like to say?
• 2:52
  Speaker 3: Again? Again, the lower the better. It would depend on
• 2:55
  Speaker 3: the composition. But really what we're seeing it is the
• 2:58
  Speaker 3: Reserve Bank if worked hard, but as a result, inflation
• 3:02
  Speaker 3: is certainly calling. So as a result, we expect at
• 3:05
  Speaker 3: least a fifty basis point cup in the official cash
• 3:07
  Speaker 3: rate in them.
• 3:09
  Speaker 2: Yeah, we're sort of we're just sort of we're eging
• 3:12
  Speaker 2: along and now we're taking quite big leaps with the
• 3:14
  Speaker 2: ocr aren't we. Do you think that will continue?
• 3:18
  Speaker 3: I think until we get to sort of more neutral levels.
• 3:21
  Speaker 3: So at the moment, the OC is at four point
• 3:23
  Speaker 3: seventy five percent if you're like the Goldilock zones, you know,
• 3:27
  Speaker 3: three to four percent, so they need to move it
• 3:29
  Speaker 3: pretty quickly now with evidence inflation is pretty much you know,
• 3:33
  Speaker 3: it's been beaten. The inflation beef has been beaten. Never
• 3:36
  Speaker 3: say never, but science is certainly encouraging. So as a
• 3:40
  Speaker 3: result they need to really take the foot off the
• 3:42
  Speaker 3: brake pedal and move into neutral. Unfortunately, if the economy
• 3:47
  Speaker 3: really weakens, they might need to actually put the foot
• 3:49
  Speaker 3: on the accelerator and that means the social cash rate
• 3:52
  Speaker 3: lower than three percent.
• 3:53
  Speaker 2: Okay, oh, look good to talk to you. Thank you
• 3:55
  Speaker 2: very much Mark for talking us through that. That was
• 3:57
  Speaker 2: ASB Senior Economist.
• 3:58
  Speaker 1: For more from Used Talks ad B. Listen live on
• 4:01
  Speaker 1: air or online, and keep our shows with you wherever
• 4:04
  Speaker 1: you go with our podcasts on IR Radio