Latest / Best of Business / Mark Smith: ASB Senior Economist on next month's OCR forecast

Transcript

Mark Smith: ASB Senior Economist on next month's OCR forecast · Best of Business

• 0:09
  Speaker 1: You're listening to a podcast from News Talks B. Follow
• 0:12
  Speaker 1: this and our wide range of podcasts now on iHeartRadio. Now.
• 0:17
  Speaker 2: ASB is now packing that the Reserve Bank will keep
• 0:19
  Speaker 2: the official cash rate on hold next month. It is
• 0:21
  Speaker 2: the second bank to change its prediction. West Pack is
• 0:24
  Speaker 2: the other. ASB senior economist Mark Smith is with us Now.
• 0:27
  Speaker 3: Ho Mark, Hi, Heather, how are you?
• 0:29
  Speaker 2: I'm well, thank you mate? Why have you changed your prediction?
• 0:32
  Speaker 3: Well, I think when things change, you have to change
• 0:34
  Speaker 3: your view. And in terms of what we have seen
• 0:36
  Speaker 3: has been really at the US and a run accord,
• 0:39
  Speaker 3: and what that has done is really seen or prices
• 0:42
  Speaker 3: drop sharply and really there's a pretty good likelihood that
• 0:45
  Speaker 3: will remain low as well. So in terms of comparing
• 0:48
  Speaker 3: it with the Reserve Bank's view, the Reserve Bank, we're
• 0:51
  Speaker 3: expecting about one hundred dollars a barrel or price is
• 0:53
  Speaker 3: about now, and we're now sitting around seventy bucks. So
• 0:57
  Speaker 3: that's a huge change.
• 0:58
  Speaker 2: Okay, the inflation story has been fascinating, hasn't it? Like
• 1:01
  Speaker 2: it has not come through to the extent that we expected.
• 1:04
  Speaker 2: Why do you think that is?
• 1:06
  Speaker 3: Yeah, that's a good point. What we have seen has
• 1:08
  Speaker 3: been obviously all these cost shocks and the horizon, you know,
• 1:11
  Speaker 3: petrol prices is a key one, but really what we're
• 1:14
  Speaker 3: also seeing that on the other side, is that a
• 1:16
  Speaker 3: very subdued demand environment is capping a lot of those
• 1:19
  Speaker 3: pricing pressures going through to the retail level. So at
• 1:22
  Speaker 3: the moment, it's a bit of a tug of war
• 1:24
  Speaker 3: between the two, and our view we think that the
• 1:27
  Speaker 3: demand side, the soft demand side, will win over the
• 1:30
  Speaker 3: medium term.
• 1:31
  Speaker 2: Do you think I mean, obviously, obviously what is going
• 1:33
  Speaker 2: to happen, given the infrastructure damage that's happened in the
• 1:35
  Speaker 2: Middle East, oil will sit higher in the foreseeable future
• 1:39
  Speaker 2: compared to where it has been in the past. So
• 1:40
  Speaker 2: should we expect inflation to sit just a little bit higher?
• 1:44
  Speaker 3: Yep. What will happen will be inflation did go well
• 1:47
  Speaker 3: above one hundred dollars a barrel back in April. It's
• 1:50
  Speaker 3: now around seventy. So what will happen is we will
• 1:53
  Speaker 3: see inflation pick up in the very short term. But
• 1:56
  Speaker 3: as the price of oil falls to around seventy or
• 1:59
  Speaker 3: eighty dollars, which is our expectation, that's when we'll see
• 2:02
  Speaker 3: inflation call from there. So really what the inflation spike
• 2:06
  Speaker 3: does is it's sort of what it does is create
• 2:09
  Speaker 3: a lot more set locality and the inflation numbers. But
• 2:12
  Speaker 3: looking at the medium term outlook, really what lower in
• 2:16
  Speaker 3: more stable oil prices does suggest is that meaning term
• 2:19
  Speaker 3: inflation will be lower.
• 2:21
  Speaker 2: Now is it a slam dunk do you think for
• 2:23
  Speaker 2: next month? Or is it going to be a close vote?
• 2:25
  Speaker 3: It's going to be close. I mean, market pricing is
• 2:28
  Speaker 3: already sort of more in favor of hikes. Analysts they're
• 2:32
  Speaker 3: very much setting on the fence. I think for our view,
• 2:34
  Speaker 3: it's really a question of you know, what has changed
• 2:37
  Speaker 3: since the main MPs guidance and our view it's really
• 2:40
  Speaker 3: the Middle East is the key one. But also there's
• 2:43
  Speaker 3: no real evidence there that inflation is really taking off
• 2:46
  Speaker 3: and broadening apart from petrol prices. And I think the
• 2:49
  Speaker 3: Reserve Bank certainly are vindicated to take a bit more
• 2:53
  Speaker 3: time to look at more details and then make a decision.
• 2:56
  Speaker 3: It's only eight weeks between the Joly decision and Septem
• 3:00
  Speaker 3: MPs and t MPs will provide the Bank with inflation
• 3:04
  Speaker 3: data for the Q two and with also a lot
• 3:07
  Speaker 3: more evidence before making decision. And now of you. It's
• 3:11
  Speaker 3: it's very much worth worth the wait.
• 3:12
  Speaker 2: Yeah, really appreciate it. Make thanks very much for talking
• 3:14
  Speaker 2: us through at Mike Smith ASB Senior Economists.
• 3:17
  Speaker 1: For more from news Talks at B, listen live on
• 3:20
  Speaker 1: air or online, and keep our shows with you wherever
• 3:23
  Speaker 1: you go with our podcasts on iHeartRadio