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Nick Tuffley: ASB Chief Economist on the inflation rate staying steady at 3.1%, when the OCR may be lifted · Early Edition with Ryan Bridge

• 0:00
  Speaker 1: Daeries dipped again. The global dairy trade auction overnight down
• 0:02
  Speaker 1: two point seven percent. Not as bad for your skim
• 0:05
  Speaker 1: milk powder. That's sort of one half of the equation
• 0:07
  Speaker 1: for the most bought for US. Skim milk powder up
• 0:10
  Speaker 1: three point two percent, whole milk powder down point six
• 0:12
  Speaker 1: This is the second time in a fortnight, because the
• 0:15
  Speaker 1: auction's fortnightly that we've gone backwards. However, remember we have
• 0:19
  Speaker 1: gone forwards all of this year after a slump at
• 0:23
  Speaker 1: the end of last Tractors for farmers listening this morning,
• 0:26
  Speaker 1: you're buying more tractors. Confidence looks like it has been returning.
• 0:29
  Speaker 1: More than two hundred new tractors were sold and registered
• 0:32
  Speaker 1: in March. That is the highest number since twenty twenty two.
• 0:36
  Speaker 1: Inflation's coming hotter than expected three point one percent for
• 0:39
  Speaker 1: quarter one, Electricity big driver up twelve and a half percent.
• 0:43
  Speaker 1: Business confidence at the same time for quarter one has
• 0:45
  Speaker 1: been hit by the war. Nick Tuffley, asb chief economist,
• 0:47
  Speaker 1: joins me this morning to get a Nick, good morning. So
• 0:50
  Speaker 1: what does the reserve being have to How high do
• 0:52
  Speaker 1: they have to go and buy Wendy reckon love.
• 0:55
  Speaker 2: We think it's increasingly likely that the Reserve Bank will
• 0:59
  Speaker 2: start lifting around July. We still think they'll end up
• 1:02
  Speaker 2: somewhere around about three and a quarter percent, and we
• 1:05
  Speaker 2: think that's the more neutral level for the official cash rate.
• 1:08
  Speaker 2: So this is about starting from a point where you've
• 1:10
  Speaker 2: still got your foot on the gas pedal, or that
• 1:13
  Speaker 2: we have much gas these days to burn, and getting
• 1:16
  Speaker 2: back to a more middle of the road level, quicker
• 1:19
  Speaker 2: than what we would have thought before the war.
• 1:21
  Speaker 1: Those who say, oh, well, if you're going to do it,
• 1:23
  Speaker 1: you might as well do it early and get the
• 1:25
  Speaker 1: thing over and done with. What are they waiting for?
• 1:27
  Speaker 1: Is it to see how bad demand takes a hit.
• 1:31
  Speaker 2: Well, there's always the argument for going hard. I think
• 1:35
  Speaker 2: at the moment we still have a lot of uncertainty
• 1:38
  Speaker 2: of exactly how the initial impacts will hit. Even by July,
• 1:42
  Speaker 2: you're still missing some of the key evidence. But if
• 1:45
  Speaker 2: you go next month, we're still missing a chunk of
• 1:49
  Speaker 2: key data. We don't even know how well the economy
• 1:51
  Speaker 2: performed in the first quarter of the year, for example,
• 1:54
  Speaker 2: but you would have information such as for the employment
• 1:58
  Speaker 2: and unemployment data for the first quarter at that point.
• 2:00
  Speaker 2: But it's just not many pictures of pieces in the
• 2:03
  Speaker 2: puzzle in May, people.
• 2:05
  Speaker 1: Normally talk about three percent being the neutral rate, and
• 2:07
  Speaker 1: the rbnz' sort of won't give a specific number but
• 2:11
  Speaker 1: just a range. You've said three and a quarter percent.
• 2:13
  Speaker 2: Whysam, Yeah, that's where aristimate has been for a while.
• 2:16
  Speaker 2: But look of these these are fairly loose. That sort
• 2:19
  Speaker 2: of three three and a half is where you've got
• 2:21
  Speaker 2: varying estimates from from people. So it's a rough guide,
• 2:27
  Speaker 2: you know, trying to observe something that's unobservable, but generally speaking,
• 2:31
  Speaker 2: that's where most people are estimating. That sort of goldilocks
• 2:34
  Speaker 2: interest rate is sitting.
• 2:35
  Speaker 1: Nick in terms of the economy and the recovery, because
• 2:38
  Speaker 1: they're different things, aren't they. Inflation being up over three percent,
• 2:41
  Speaker 1: maybe at four maybe four and a half coming back
• 2:44
  Speaker 1: to three by Christmas, that's a different thing to our
• 2:47
  Speaker 1: economic recovery. Do people need to freak out that that
• 2:50
  Speaker 1: is all at risk? Or has Trump sort of shut
• 2:53
  Speaker 1: up enough and doing enough on the peace talk front
• 2:56
  Speaker 1: to allay your fears of some kind of catastrophic to
• 3:00
  Speaker 1: our recovery.
• 3:02
  Speaker 2: Well, we think we're still going to have a recovery.
• 3:04
  Speaker 2: That it's really slowed down this year. We were expecting
• 3:07
  Speaker 2: growth would reach somewhere close to three percent. Now we're
• 3:09
  Speaker 2: looking at something around to one to one and a half.
• 3:12
  Speaker 2: So lo it is taking a bite out of our
• 3:14
  Speaker 2: growth through the middle parts of this year, and we
• 3:17
  Speaker 2: may initially have a slight contraction in the initial stages
• 3:20
  Speaker 2: of this hitting. So look, there's still good seeds in there.
• 3:23
  Speaker 2: You were just talking about dairy prices, where that's one
• 3:27
  Speaker 2: area as an example of where the economy is going well.
• 3:31
  Speaker 2: So it's not lose sight of those totally as well,
• 3:34
  Speaker 2: but we're facing inflation where it could be getting close
• 3:37
  Speaker 2: to five percent this year, it's likely to finish the
• 3:39
  Speaker 2: year out or above four percent, so it's a really
• 3:43
  Speaker 2: tough situation for the Reserve Bank.
• 3:45
  Speaker 1: Nick, appreciate your trying this morning, Nick Tuffley, who is
• 3:47
  Speaker 1: asb's chief economist.
• 3:49
  Speaker 2: For more from Early edition with Ryan Bridge, Listen live
• 3:52
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• 3:55
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