Latest / Best of Business / Brad Olsen: Infometrics Principal Economist on inflation dropping to 3.7 percent in the year to September

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Brad Olsen: Infometrics Principal Economist on inflation dropping to 3.7 percent in the year to September · Best of Business

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  Speaker 1: You're listening to a podcast from Newstalk ZB. Follow this
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  Speaker 2: Inflation has fallen to 3.7% from 4.1%. However, this will
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  Speaker 2: be a temporary reprieve given that petrol is, of course,
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  Speaker 2: up again this quarter because of the Middle East conflict.
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  Speaker 2: And Brad Olsen is the Principal Economist at Infometrics who's
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  Speaker 2: with us. Hello, Brad.
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  Speaker 3: Good evening.
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  Speaker 2: So unfortunately for us, it's already in the rearview mirror,
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  Speaker 2: isn't it?
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  Speaker 3: Well, it is. And let's be clear, 3.7% is still
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  Speaker 3: not a good number. It's just down below the 4% mark,
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  Speaker 3: but we are expecting it to bounce back higher. What's
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  Speaker 3: probably the most challenging thing here, when we look through
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  Speaker 3: the numbers, the first headline at 3.7 did appear maybe
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  Speaker 3: a little bit better than expectations. But the more we
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  Speaker 3: look through the figures, the more pressure points we started
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  Speaker 3: to see coming through in the economy, some of those
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  Speaker 3: core measures of inflation, which tells us a bit about
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  Speaker 3: how broad and sort of deep inflation might become, have
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  Speaker 3: been ticking up a little bit on these figures. There's
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  Speaker 3: a much larger proportion of items that are increasing in cost.
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  Speaker 3: And so all of that, the sort of spillover that
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  Speaker 3: we've seen going through into building costs, we've seen the
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  Speaker 3: likes of international airfares that have gone up. We've seen
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  Speaker 3: property maintenance costs lift. All of that just makes us
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  Speaker 3: uncomfortable when you take all of that into account. You've
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  Speaker 3: got the lower New Zealand currency at the moment, which
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  Speaker 3: is making imports more expensive. And of course, the eye-watering
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  Speaker 3: fuel prices at the current time. All of that means
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  Speaker 3: that the end of this year and probably into next
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  Speaker 3: year are still going to be quite challenging on that
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  Speaker 3: pricing front. Yeah, OK.
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  Speaker 2: So what do you think the impact is on the
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  Speaker 2: OCR decision next week?
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  Speaker 3: I mean, you can never say it's a sure thing,
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  Speaker 3: but it's got to be pretty close now. Expectations will
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  Speaker 3: be high for the Reserve Bank to raise the official
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  Speaker 3: cash rate by another 25 basis points. There was talk beforehand, right,
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  Speaker 3: about does the Reserve Bank go in October or December
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  Speaker 3: or both? Could they afford potentially to pause in October, reflect,
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  Speaker 3: sort of see what was coming through? But those three
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  Speaker 3: figures or three trends that I discussed before, the higher
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  Speaker 3: fuel prices now, the currency, and those sort of underlying
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  Speaker 3: lingering inflation pressures that we've seen today, they sort of
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  Speaker 3: are going to force the Reserve Bank's hand because clearly
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  Speaker 3: there's already a bit more pressure in the system than
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  Speaker 3: the Reserve Bank had been anticipating. That means they still
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  Speaker 3: sort of need to continue to move just to get
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  Speaker 3: back to neutral a bit quicker. I think the big
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  Speaker 3: challenge is a lot of these pricing pressures are not
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  Speaker 3: things that the official cash rate can easily influence. The
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  Speaker 3: OCR going up is not going to make fuel prices
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  Speaker 3: cheaper tomorrow or anything like that. But for the Reserve Bank,
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  Speaker 3: they're in this awful position where they are cautious about
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  Speaker 3: the economic recovery. They're cautious that they can't influence fuel prices,
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  Speaker 3: but they've got to try and get inflation under control.
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  Speaker 3: So those higher interest rates are going to have to
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  Speaker 3: press on other parts of the economy to try and
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  Speaker 3: get the overall inflation figure a bit lower over time.
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  Speaker 2: Brad, thanks very much. Brad Olsen, Infometrics Principal Economist.
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