Latest / Early Edition with Ryan Bridge / Kelly Eckhold: Westpac Chief Economist ahead of the CPI release, says inflation is predicted to be around 2%

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Kelly Eckhold: Westpac Chief Economist ahead of the CPI release, says inflation is predicted to be around 2% · Early Edition with Ryan Bridge

• 0:00
  Speaker 1: Inflation numbers are out today. Forecasts are predicting a quarterly
• 0:03
  Speaker 1: rise of between point seven point eight percent, taking us
• 0:06
  Speaker 1: to just over two percent. And you know what that means.
• 0:09
  Speaker 1: That puts us back in the box the Reserve Bank's
• 0:12
  Speaker 1: target range of one to three percent for the first
• 0:14
  Speaker 1: time since quarter one of twenty twenty one. Kelly Echold
• 0:17
  Speaker 1: is Westpax chief economists. What's still going up rates, obviously
• 0:22
  Speaker 1: going up insurance? How much are they contributing.
• 0:27
  Speaker 2: Well, it's essentially a significant part of the total CPI,
• 0:32
  Speaker 2: So like there's a real split there between what's going
• 0:35
  Speaker 2: on with pricing right now. Today. We expect, for example,
• 0:39
  Speaker 2: that the forty odd percent of the CPI, which is
• 0:43
  Speaker 2: all important things like petrol or kind of like electronic goods,
• 0:49
  Speaker 2: those things will have fallen in price by one and
• 0:52
  Speaker 2: a half percent of the last year. But at the
• 0:54
  Speaker 2: same time, all the other things like rates, insurance, all
• 0:58
  Speaker 2: the services that you buy those things are expected to
• 1:02
  Speaker 2: have increased by five percent basically for the year. So
• 1:07
  Speaker 2: that kind of average of two point two two point
• 1:09
  Speaker 2: three is really reflecting some pretty divergent trends.
• 1:13
  Speaker 1: Yeah, when we look at the you know, the big
• 1:18
  Speaker 1: reason for the inflation coming down is globally right. Inflation
• 1:21
  Speaker 1: has been coming down, the oil etcetera has been coming off,
• 1:25
  Speaker 1: and that has flowed through to us because we've had
• 1:27
  Speaker 1: the non tradeables have been so sticky. That basically means
• 1:31
  Speaker 1: the reserve banks had to whip us extra hard, doesn't
• 1:34
  Speaker 1: it to do an extra hard job when it comes
• 1:37
  Speaker 1: to interest rates?
• 1:39
  Speaker 2: Yeah, well that is sort of right. The bit of
• 1:43
  Speaker 2: the CPI at the Reserve Bank really mainly controls as
• 1:46
  Speaker 2: that non tradeable bit because all of those services prices
• 1:50
  Speaker 2: reflect the balance of supply and demand within New Zealand,
• 1:55
  Speaker 2: whereas with respect to all of those import prices, their
• 1:58
  Speaker 2: prices are generally set off sure, and we just get
• 2:01
  Speaker 2: what we get. So, you know, that's why the Reserve
• 2:05
  Speaker 2: Bank has generally been pretty cautious here and continues to
• 2:08
  Speaker 2: be a bit cautious because you know, with domestic sort
• 2:12
  Speaker 2: of inflation sitting closer to five percent is opposed to
• 2:16
  Speaker 2: three percent, it's actually it's still quite a lot higher
• 2:19
  Speaker 2: than it really needs to be.
• 2:20
  Speaker 1: Can they go back to back double whammys in terms
• 2:24
  Speaker 1: of the cuts to the OCR if the inflation is
• 2:28
  Speaker 1: back in the you know, the genies back in the
• 2:30
  Speaker 1: bottle today.
• 2:32
  Speaker 2: Well they can. I mean, we're actually forecasting that they
• 2:35
  Speaker 2: will do another fifty basis point cut at their monetary
• 2:38
  Speaker 2: policy statement next month. And the rationale for that seems
• 2:42
  Speaker 2: to be that even after having cut interest rates by
• 2:45
  Speaker 2: seventy five basis points will read this year, it's still
• 2:49
  Speaker 2: quite a high rate compared to where they think it's
• 2:52
  Speaker 2: going to average out over time. So given now we've
• 2:55
  Speaker 2: got aggregate inflation getting pretty close to two percent, there
• 2:59
  Speaker 2: isn't really that stronger case for keeping interest rates quite
• 3:02
  Speaker 2: that high. They still think that interest rates are going
• 3:05
  Speaker 2: to be have to be on the higher end of
• 3:09
  Speaker 2: average basically to bring that non tradables inflation down over
• 3:12
  Speaker 2: to time, But there's just no need for as tighter
• 3:16
  Speaker 2: conditions as we've had to endure for most of the
• 3:18
  Speaker 2: last couple of years.
• 3:20
  Speaker 1: I'll take that. Kelly, thank you very much for your
• 3:21
  Speaker 1: time this morning. Kelly Echol, Westpac Chief Economist. The Infati
• 3:26
  Speaker 1: numbers out today for more from early edition with Ryan Bridge.
• 3:30
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• 3:34
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