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Mark Smith: ASB Chief Economist looks ahead to the Q1 inflation rate · Early Edition with Ryan Bridge

• 0:00
  Speaker 1: Inflation expected to ease today or at least hold steady.
• 0:02
  Speaker 1: If this is for quarter ones, that's a backward looking
• 0:05
  Speaker 1: number ten forty five. Today you'll get a full cast.
• 0:07
  Speaker 1: Have it just under three percent down from three point
• 0:09
  Speaker 1: one percent, That would get it back inside the target.
• 0:11
  Speaker 1: Man for the rbnzed But for how long is the question?
• 0:13
  Speaker 1: Mark Smith, asb Senior economist, Mark, good morning.
• 0:16
  Speaker 2: Good morning.
• 0:17
  Speaker 1: Right, so only about a sixth from my counting of
• 0:21
  Speaker 1: this period includes the impact of the war, right, correct, Yeah.
• 0:25
  Speaker 2: The war started at the start of May, and the
• 0:28
  Speaker 2: CPI and captured at the very start of it.
• 0:31
  Speaker 1: What are you picking then, Yeah, we're.
• 0:34
  Speaker 2: Picking two point nine, but very close to three came
• 0:37
  Speaker 2: to our numbers. But as you said, it's more important
• 0:39
  Speaker 2: what the future trajectory looks like on the basis of
• 0:43
  Speaker 2: a number of scenarios. Obviously the ore price oltier. We
• 0:47
  Speaker 2: quite likely get four four and a half percent by
• 0:50
  Speaker 2: the middle of the year, and the real thing will
• 0:52
  Speaker 2: be how long is a de prices hold up for
• 0:55
  Speaker 2: or wouldly determine how long that inflation rate holds up for?
• 0:57
  Speaker 2: As well?
• 0:58
  Speaker 1: What about core inflation?
• 1:00
  Speaker 2: Yeah, they should sort of pick up the result back
• 1:03
  Speaker 2: numbers have it at two point eight percent. I think
• 1:05
  Speaker 2: they're real. Worry for them will be if we see
• 1:07
  Speaker 2: a sign that the price increases are widely become more
• 1:11
  Speaker 2: board based. I think that is a much more serious
• 1:14
  Speaker 2: problem than just a few things going up. If everything
• 1:17
  Speaker 2: starts to go as well, how.
• 1:19
  Speaker 1: High do you think it's going to go? But you know,
• 1:20
  Speaker 1: obviously north of four percent next quarter and beyond that,
• 1:24
  Speaker 1: but how high will it go at this point? Do
• 1:26
  Speaker 1: we have a firmer reading than we did a couple
• 1:28
  Speaker 1: of weeks ago.
• 1:30
  Speaker 2: The thing is not really it's already determines what's happening globally.
• 1:34
  Speaker 2: And you know, we had signs where there was a
• 1:36
  Speaker 2: ceasefire and now things look to be breaking down. You know,
• 1:39
  Speaker 2: the straight up home moves is closed. It's not just
• 1:42
  Speaker 2: oil prizes, it's fertilizer, it's freight. Diesel is a key
• 1:46
  Speaker 2: component for the supply chain in New Zealand. So we're
• 1:49
  Speaker 2: looking at potentially very wide spreads increases. So our central
• 1:53
  Speaker 2: scenario has about four and a half percent in Q
• 1:55
  Speaker 2: two and then holding to about four percent by the
• 1:59
  Speaker 2: end of the year. It could all go higher than that.
• 2:02
  Speaker 2: So really for the Reserve Bank, this sort of thing
• 2:04
  Speaker 2: is as a worst case scenario, they can't really address
• 2:08
  Speaker 2: this straight away. The real people for them will be
• 2:11
  Speaker 2: how long this holds up?
• 2:12
  Speaker 1: For Mark, the Reserve Bank's always said we'll look through
• 2:15
  Speaker 1: the first round of inflation, will look through this stuff,
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  Speaker 1: and then we'll only bother acting if we get to
• 2:20
  Speaker 1: the second wave. When would a second wave come?
• 2:25
  Speaker 2: Yeah, again, that's hard to know. I think in our
• 2:28
  Speaker 2: view is the expectations that inflation will hold up for
• 2:31
  Speaker 2: a while. If it looks like it's holding up well
• 2:34
  Speaker 2: into next year, the boss of our figures, you know,
• 2:37
  Speaker 2: inflation are like the below three percent by the middle
• 2:40
  Speaker 2: of the next year. If it's looking like it's been
• 2:43
  Speaker 2: holding up for longer, what that it really means is
• 2:45
  Speaker 2: the Reserve Bank cat to get a move on. And
• 2:48
  Speaker 2: at the moment we expect the cash rate to go
• 2:50
  Speaker 2: up from September only very gradually. The cash rate is
• 2:54
  Speaker 2: still low. If inflation looks like it's going to be
• 2:57
  Speaker 2: holding up for longer, we can well see the cares
• 3:00
  Speaker 2: straight move by slightly more than we were expecting.
• 3:02
  Speaker 1: Mark Smith, asb Senior, connoms with us this morning for
• 3:06
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