So, two big questions face us with the forthcoming release of Consumers Price Index (AKA inflation) figures for the June quarter.
Question one is, will we crack the '7' this time? (Spoiler alert - very probably and it will be, as Westpac senior economist Satish Ranchhod aptly describes: "The not-so-magnificent seven.")
Question two - and this is the real biggie - will this be the peak?
Statistics New Zealand unveils the data on Monday (July 18).
Economists expect that annual inflation, having just come up shy of 7% for the March quarter, with 6.9%, will make the '7' mark this time - for the first time in over three decades.
Wow, how did this happen?
A year ago the Reserve Bank (RBNZ) forecast that the annual rate of inflation as of June 2022 would be just 1.5%. Slight undershoot in expectations there - but the central bank was by no means alone in that. By no means.
Anyway an inflation figure of 7% or possibly even slightly higher means the inflation rate will be the highest in 32 years.
Here's a graph going all the way back to 1916, courtesy of the RBNZ, that gives historical perspective.
And here's another one featuring the more recent past and highlighting how dramatic the move upward has been.
Will the June quarter figure prove to be the peak though?
Economists think so. The Reserve Bank, which is pretty interested in the subject, thinks so too. The RBNZ, which is charged with keeping inflation between 1% and 3%, has forecast (as of its May Monetary Policy Statement) that the annual rate will be exactly 7.0% for the June quarter, before falling to 6.2% in the September quarter.
However, the RBNZ is not forecasting for the CPI to get back to under the 3% ceiling of its targeted range till December of next year. So, inflation is going to be elevated for a while yet.
What's more though, economists are growing pretty doubtful that the RBNZ will get the inflation beast back into its box even within the kind of timeframe it is talking about. So even though we could be about to see the peak, it doesn't mean that inflation will necessarily fall quickly from here.
The RBNZ has been talking tough and indicating that slaying inflation is everything at the moment. It has increased the Official Cash Rate by 225 points (to 2.5%) in the past nine months, with a 50 point rise on Wednesday (July 13). The RBNZ is fearful that people's expectations of future inflation will rise.
Killing inflation expectations can almost be seen as the biggest immediate priority for the central bank. That's because if people expect prices to be higher in future, well, they will put prices up and that will feed into inflationary behaviour. It could become self-fulfilling. High inflation could be around for some time.
It's worth noting that the next edition of the RBNZ's own Survey of Expectations - which canvasses the views of experts on expected future levels of inflation - comes out on August 8, a little over a week before the RBNZ next reviews interest rates. The results of this survey will likely be very influential on what the RBNZ decides.
As for what we can expect for the CPI inflation release, the main suspects in terms of helping to cause the '7' are expected to be fuel (as you will have noticed), housing related costs (as you will have noticed) and food (as you most certainly will have noticed). In reality though, and worryingly, the inflationary pressures have become remarkably widespread.
As ever there will be keen interest in the division between the so-called tradeables inflation from imported goods (such as the ever-volatile petrol) and non-tradeables, which are domestically-generated sources of inflation.
It's the latter, the 'non-tradeables', the price rises generated right here in NZ that are the most problematic for the RBNZ.
Economists are expecting that 'non-tradeable' inflation will again be around or over 6% when the latest data is released (and it was exactly 6.0% in March). The RBNZ's still got work to do. Plenty.
And so, regardless of whether our not-so-magnificent seven inflation figure does prove to be the peak, questions will remain about whether inflation is likely to recede that quickly again either, and what might therefore happen to inflation expectations.
This is all crucial when it comes to interest rates.
There are those out there hopeful that mortgage rates, having rocketed this year, might have peaked.
It's simply too early to say that, not when the US is still producing red-hot inflation figures, and not when any higher-than expected inflation figure here might start forcing our wholesale interest rates up again. Plenty of water to go under the bridge.
So, what are the economists making of all this? Here we go:
Westpac's Ranchhod says there’s been "no relief from the intense price pressures that have been buffeting New Zealand households".
"We’re forecasting a 1.4% rise in consumer prices in the three months to June. Coming on the back of the strong price rises in previous months, that would take the annual inflation rate to 7.0% - up from 6.9% last quarter and the highest annual rate in more than three decades."
He notes that much of the rise in consumer prices over the past three months (and over the past year) relates to three key areas – fuel, food and housing costs.
"However, the strength in inflation isn’t limited to a few areas. Rather, price pressures are bubbling over in every corner of the economy, boosted by a cocktail of supply-side cost increases and strong consumer demand.
"On the cost side of the ledger, businesses continue to grapple with disruptions to global supply chains and the related difficulties sourcing both consumer goods and raw materials.
"Operating costs have also been boosted by elevated global prices for commodities such as oil. And on top of those factors, wage costs have been pushing higher as businesses have struggled to attract and retain staff.
"But while shortages of staff and materials have boosted inflation, what’s really lit a fire under consumer prices has been the strength of demand. Indeed, if we look at the areas where businesses are reporting significant shortages of supplies, they’re predominantly in areas where demand has been strong, like the retail and construction sectors. In other words, the economy’s productive capacity hasn’t been able to keep up with the lift in demand since health restrictions were eased, and that’s resulted in prices ratchetting higher.
"That strength in demand is important for two reasons. First, it’s given many businesses greater scope to pass on cost increases into output prices, rather than just taking a hit on margins. Second, if demand is strong, inflation is likely to remain elevated even when the current pressure on operating costs (eventually) eases off. And that’s a big concern for the RBNZ, as a key factor underpinning the strength of household demand has been stimulus from low interest rates. In fact, that’s a key reason why the RBNZ has been raising the Official Cash Rate at such a rapid pace in recent months," Ranchhod says.”
ASB senior economist Mark Smith says the speed at which inflation has climbed has surprised "just about everyone (us included)". He's picking a figure of 7.1% for annual inflation.
"Once again, higher tradable goods prices should feature as a reminder that high inflation rates are not unique to NZ. Non-tradable and core inflation rates, however, are expected to remain sticky, with annual readings at (or close to) multi-decade highs," Smith says
"The inflation outlook is still highly uncertain, but annual CPI inflation looks to have peaked this cycle. Despite this, inflation is considerably above the [RBNZ's] 1-3% CPI inflation target with the risk of annual CPI inflation staying outside the inflation target for considerably longer than expected by the RBNZ. Another 150bps of OCR hikes by the end of the year looks to be needed, and while we have pencilled in OCR cuts for 2024, high inflation will need to be conquered first."
Smith expects annual inflation to have peaked, but for the deceleration in headline inflation to be slower than RBNZ expectations. He says ASB research points to the risk of high inflation rates persisting for longer, particularly if the labour market remains tight.
"It would up the ante on the RBNZ delivering a more front-loaded pace of OCR hikes to lean against inflationary pressure. It is our expectation that the OCR would end 2022 at 3.50%, around 100-150bps above neutral levels, with the 275bps of hikes for calendar 2022, the largest increase for a calendar year on record. Hopefully, this will be sufficient to break the back of inflationary pressure and allow the OCR to eventually head to less restrictive settings. We have pencilled in OCR cuts from 2024 but this will depend on there being sufficient slack in the labour market, something that is sometimes outside of the RBNZ’s control.
"There is still a lot priced into wholesale interest rates despite the recent pullback and there appears to be limited scope for NZ yields and the NZD [NZ dollar] to gap higher from an upward inflation surprise. With the growth outlook looking wobbly we are likely to see more pronounced currency and rate moves from a more benign set of numbers for headline and non-tradable inflation close to (or below) RBNZ expectations," Smith says.
ANZ economist Finn Robinson and chief economist Sharon Zollner are also picking 7.1% annual inflation.
"Uncertainty remains high, with global commodity prices being buffeted by geopolitical developments, and trading partner inflation continuing to surge. Domestic inflation risks are firmly to the upside, given still-high inflation expectations and an extremely tight labour market. We expect annual non-tradables inflation remained high at 6.0%, while tradables is expected to have nudged up to 8.7% y/y (8.5% previously)," they say.
"The RBNZ is unlikely to find any comfort in next week’s data – and that should see another 50bp hike delivered at the August MPS, despite downside growth risks piling up. If we were to see a non-negligible upside surprise to the CPI print, another 50bp in October would be game on. The RBNZ has no leeway to take any chances on the inflation front."
Robinson and Zollner say the inflation data will be a reminder that "even though downside growth risks are accumulating, public enemy number 1 remains inflation".
"Underlying inflation pressures have continued to build – and with non-tradables inflation likely to remain far too high over the next year, the pressure is on for the RBNZ to rein inflation in.
"That said, it is currently our expectation that the RBNZ will pause hiking at the end of this year, as demand falls away a little faster than they currently anticipate. A soggy outlook for consumer spending and a housing market in decline should take significant heat out of the economy. Now that we’re a full 12 months past the record-low mortgage rates seen during 2021, many mortgage-holding households will be feeling the effect of higher interest rates. We’re forecasting another 50bp hike in August, followed by 25bps in both October and November.
"From there, we are forecasting the RBNZ to pause, with the OCR at 3.5%, as signs of slowing demand become evident.
"However, everything comes down to inflation. The RBNZ will need to see firm evidence that they’ve hit demand hard enough to contain inflation. If that evidence fails to emerge, then don’t expect the RBNZ to ease off the interest rate brakes any time soon – even if growth starts to fall away. And any meaningful upside surprise to the CPI starting point in Monday’s data would make another 50bp hike in October considerably more likely. In the May MPS, the RBNZ expected non-tradables to ease to 5.7% in Q2, versus our expectation it stayed flat at 6.0%. If we’re right, that would suggest a more persistent domestic inflation pulse than the RBNZ has forecast," Robinson and Zollner say.
Consumer prices index
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90 Comments
We, like the rest of the world, will be reliant on what the Fed does and the strength of the USD.
If the Fed are still raising (or holding high/er rates) to control inflation there, but we have a crashing housing market and rising unemployment, with inflation still above 3%, we are going to be in a world of pain.
So what major items in the CPI basket will keep sustaining aggressive inflation?
Food? Under pressure, supermarkets have committed to avoiding / minimising price rises.
Fuel? Oil prices have gone much lower, admittedly they are volatile, but can they go significantly higher than their peak a month or so ago? I am not sure.
Rent? All signs point to rent inflation slowing a lot.
Wages? While unemployment may not soar, demand for labour is likely to slow markedly, reducing wage inflation pressures.
1) Food - two of the top five food suppliers in the world are at war and that has affected their ability to grow and ship grain. Fuel shortages have also meant bad harvests and more expensive harvests in various areas outside of the Ukraine/Russia because fertiliser uses fuel and fuel prices have gone crazy.
2) Fuel - Russia cutting off fuel supplies = more demand for fuel. Fuel companies have been downsizing operations or keeping operations flat across the board for the last decade as they've funneled money into buying back shares during a time when their stock was plummetting. Higher demand + lower supply = higher prices, even though prices may fluctuate from time to time. It's worth keeping in mind that prices have rocketed even despite the fact that OPEC are deliberately trying to suppress prices by bringing excess supply online. OPEC themselves have indicated they are nearing full capacity which means they may no longer be able to bring anymore capacity online to suppress prices in future.
3) Rent - yeah rent prices might go down. Hard to tell. Don't really have a view on that.
4) Wages - don't have a view.
IMO the most important thing is energy prices - rising energy prices push the price of EVERYTHING up. Fuel is used in manufacturing, in food production, in shipping and handling, and a whole lot more. Fuel prices affect all prices and because, in my view, we will see fuel prices slowly rise over the next decade or so, we will have an average of at least 5% inflation for the coming decade.
Oil is Russias lever over the west. If things get worse Russia can keep their economy moving and trash our economies by cutting back supply:
Currently they are choosing to inflict just enough damage ... just this week they shut a gas pipe to germany as a reminder of their power... if they cut the supply into EU winter then Germany/EU will be rationing power for people and businesses.
Add to that the middle east issues -, and i definitely wouldnt bet on this being an inflation peak.
The pipeline has been scheduled to be shut for maintenance for quite some time. It wasn't to teach anyone a lesson.
Most of the countries that have abundant oil reserves are dumpster fires of corrupt leadership, with the exception of Norway. It'll help keep Russia alive, but barely.
Yes it's going to be a problem, but the Europeans will substitute with coal and Qatari gas. Demand destruction is what is sending the oil price lower and that will continue everywhere. The Russians will stop their war once the oil price has fallen and they've run out of ammunition and cash to pay for their cratering economy. Then everything else will come back into balance at a lower level.
I am not convinced - i wish it wasnt true but EU isnt ready to substitute enough of their energy needs from other sources yet (i suspect for years - they dont have infrastructure ready as they assumed russia would always be sweet), and Russia economy is currently doing quite well from continued oil sales globally with plenty of margin for oil export losses....
time will tell
Prices at the pump still do not reflect lower oil costs which are affected by capacity constraints and transport costs so it will some months if retail prices drop and longer before the higher ones drop off the equation. Food prices will not drop unless you believe Govt prediction/action will prevail in which case you have not noted how effective past Govt predictions have worked out - Kiwibuild a prime example.
The pattern of excursions of inflation above target is that the excursion lasts about 2.5 years, and that was in periods when the RBNZ was more serious about inflation (measured in terms of OCR response to incremental inflation). My guess is that we will see inflation significantly above target until early 2025.
Their mortgage rates are variable, so changes to their OCR flow through much more quickly. Also their construction sector is arguably even more precarious than here.
Then factor in slumping demand from China and falling commodity prices.
that’s why although Aus looks like a very good option for some, I would also be a bit careful. It will be sector-dependent, of course.
Depends on the workers skillset. Healthcare and Education? They will be better off almost anywhere but in NZ. IT? With the switch to Cloud This and Cloud That, pretty much guaranteed better pay for the same job elsewhere, although you have the remote working option. Hospitality and Retail? You're stuffed wherever you go. Entrepreneur? Depends on your business, but there are plenty of other places where the "cost of doing business" is significantly lower than in NZ.
Some of these are truisms but there's also limits to migration for the average kiwi worker, cultural and language barriers, lack of local area and networking knowledge, etc. All of these places are undergoing similar cost of living and housing issues as NZ, with arguably worse labour markets.
As for entrepreneurship, NZ is still one of the easiest places on earth to start and run a business.
That's not to say for a second there's not some great opportunities and places to live out there, but I feel it's also a lot harder for most than they'd like to think.
I agree that if house prices have fallen by 30% then RBNZ might well see that as a threat to financial stability. But that is just more nonsense from team RBNZ.
The real threat to financial stability was RBNZ's choices to apply QE and OCR less than 3% together with their (temporary) elimination of LVRs.
We could start seeing a sharp slump if demand is completely destroyed. The drop could be quite sudden so they may try to limit the fall by cutting to ease the severity of the slump.
But if we are in that situation, then we would have real problems in the real economy with job losses/debt defaults so it might not be the saviour some want in terms of limiting the pain they experience if they hold a large quantity of debt relative to their income. i.e. great they've cut the OCR and interest rates are falling but I've also lost my job and have defaulted on my mortgage.
I/O - the drop in demand at this time is certain as higher mortgage/fuel/insurance/food/local rates/energy all remove discretionery disposable income. The question is how soon how deep and were, the were is easy - retail/hospitality/entertainment the hard bit is how soon - already happening and a quick look at Interest .Co charts shows this,how deep is tough and depends on if Joe public panics then it will be deep and most likely as many fail to understand the process and when it hits them - unemployment/no overtime or bonus panic and cut their costs to the bone which is what I expect.
I do sincerely hope you are right, as sustained periods of high inflation are extremely damaging to the economy. However 3% by the second quarter of next year would seem to me wildly optimistic. Yes inflation will decrease (assuming that the RBNZ does its job properly by taking the OCR peak to 4%, that the supply chain issues reduce with time, that energy prices stabilize etc.,) but I don't see it going any lower than 4.5%-4% any earlier than the end of 2023, and it will stay there for the next two, most likely 3 years. Inflation is much harder to tame than many people think, and it takes longer.
It's not just a matter of looking at the major elements of the CPI basket. Have you considered the wage price spiral (up) that has already begun. Once started it's difficult to stop. It's not necessarily just a matter of saying oil has peaked, construction is doomed, so the inflation rate will suddenly drop. Many employees are demanding higher wages, increasing costs of goods. These increases can lag, take time to come through into the CPI figures. It all takes time, a bit like the housing market, on the way down.
I'm actually not sure about inflation would just peak at 7. Somehow my gut feeling tell me that inflation might come down a bit from 7 but might go up again. Remember in US, for one month, inflation actually came down a bit, then reached a new high in the following month. Inflation normally starts with a trigger, which is supply chain disruption. But it unlikely finishes with resolution of supply chain side of issue. The issue we have right now is the high inflation expectation and very low unemployment rate, this will put inflationary pressure on wages, especially when inflation is not tamed globally. So my bet would be RBNZ keeping OCR high for quite a bit time until they know it for sure that inflation is tamed, this includes global inflation. Cutting OCR lower than neutral in 2023 could happen, but only could happen under one scenario in my opinion, which is severe recession.
COH - according to stats nz 93,000 unemployed, jobseeker numbers 188,000. Unemployment rate 3.2% based on those receiving unemployment benefit so unless those receiving jobseeker allowance are not actually unemplyed/not really looking for work or unemployable the unemployment rate is closer to 9% not counting even the under employment rate of 125,000 some of whom may be disabled or part time and not available for full time work so my point is the widely quoted figures are at least misleading. So is the real figure in excess of 10%???
A hugely detailed conversation on an upper Titanic deck. David, see my most recent piece on this site.
https://www.interest.co.nz/public-policy/115678/murray-grimwood-outline…
The first graphic is the whole of the problem; all these discussions are within the central box. The two arrows coming in from the left, are the all of the problem.
We line up at the left of that box, proxy clutched in hand, and claim a portion of the two arrows. We bluff each other at that barricade; a fact of which Putin is well aware. And those two arrows have peaked, flow-wise. So the only way you can reduce inflated prices - at the barricade - is by demand-destruction. Unfortunately, demand-destruction in food terms, results in starvation.
We need - and always needed - to be measuring the real world, and the real depletions vs the real increases in consumption. That can't be done by reading massed emotions which in turn are reacting to their proxy which in turn is keystroke-issued with no correlation to said physical depletion.
I talked someone out of building yesterday. Started by pointing out all the provisions for cost increases in their contract, pointed out all the material increases signaled by suppliers and looked at their PC sums vs reality and found 50k extra in today's money, also that their interest rate would probably be higher than today. I knew two others building with the same firm who were 6 months and $75k behind. Said to wait 6 months and pick up a distressed nearly complete build at mortgagee sale or don't bother at all.
My suggestion to everyone is to take out unemployment insurance.
Sounds good, but usually after plaster and paint you have fit off of electrical and plumbing, and ideally you want the people that did the pre-wire and pipes to do that. Theres usually also a raft of building odds and sods.
Any decent tradie will want to avoid taking up someone else's work, or charge over the odds to come in blind.
You will have heard of the saying "never let a crisis go to waste". With the labour market having been so tight for so long there will be companies with employees that they would rather not have employed but had no other option. They will be keen to offload them at the first sniff of redundancies.
If we go into a deeper recession then any firm carrying passengers is going to be at a cost disadvantage and more susceptible to failure.
Once inflation is back down which could take a couple of years the world will be a different place. Low rates will not happen again it would be crazy to try and pump up system with cheap money. In this country the main game is house price’s this is over prices will continue to drop and bottom will be found when the majority of population can afford to buy a home.
Pa1nter sounds like you are programmed to expect governments to keep money printing, what happened to buy the deep, seems to not work any more. The last couple of years is last time governments will get away with just printing money. Interest rates will be around 3% to 4% until inflation is under control, if FED started lowering rates again the USD would lose reserve currency status at which point inflation would get out of control and they then could print as much as they like but it would be worthless.
DTRH what makes you think interest rates will stay around 3% to 4% until inflation is controlled?
If we look back at historical data, when inflation has been high the Fed has often been happy to let inflation run higher than interest rates (even though we might not expect that given that their mandate should dictate that high inflation = high interest rates). In the 1940s for example, after the US had clocked up a massive debt due to wartime spending, yields were deliberately kept repressed below inflation by the Fed despite the fact the US had CPI of around 15% for almost a decade (yield was 0.75%, and we know that the Fed were instructed to do this to get rid of the public debt). In my opinion, we will see a similar thing happen here. Public debt is huge following covid, and the easiest way to get the debt under control is to inflate it away by suppressing yield below inflation rates. It has happened many times before and it will happen here again.
In my opinion, the world is simply too financialised to remove too much liquidity. The Fed know this - I expect they will raise interest rates to about 4%, inflation will cool down a little bit (from 9% to 5%, say), and then everything will go to shit and the Fed they will lower interest rates again on the basis that their hands are tied (despite inflation moving higher in the same period). Not only will the Fed do that, they will do that on purpose, because low rates + high inflation means that public debt is inflated away at the same time that people feel like their standard of living goes up (even if it doesn't in reality, but more jobs and higher salaries paper over the fact that your higher salary actually buys you less). That's my bet.
Interest rates are not high at 3% or 4% the FED has to put some backbone into currency or as I have already explained to USD will lose reserve status turning it worthless. Inflation is high at the moment but FED will let that ride out for a while to bring down overall debt. The RBNZ will just follow directions from FED even then NZD is down 15% from end of last year.
Only time will tell, at the moment rates are going higher USD is stronger NZD down 15% this year the same as other currencies why would FED go back to zero or low rates and lose credibility China Russia Middle East and other countries are trying to stop USD from being the reserve currency because of FED printing trillions of dollars if US loses this status’s the worlds financial system would end as we know it so make sure you have plenty of silver and gold or something you can barter like your marbles
The US has printed about 6x as much money as the Eurozone during this period, but is looking stronger than ever against it.
Perhaps we will see a day of reckoning, but at the moment it appears that despite the printing, the US is looking far stronger than most other economies, and for good reason. They're able to use their far superior position to leverage printing.
NZ also in a more favourable position than most, and in decent consumer economies with healthier population demographics, money printing has a far greater effect in terms of fiscal velocity.
I'd wager the US economy likely has a couple of more rounds of worthwhile money printing in it over the coming decades. You're wanting to wager on shiny rocks.
Time will tell.
Everyone saying this is the peak.
Because we’ve raised rates a bit. (Still far, far below neutral.)
Because rate rises will cause demand destruction- which we haven’t seen yet, at all. Hasn’t actually happened.
Even though our currency is sinking.
It’s garbage, just as much as all the previous predictions. Pricing in a response while precluding the response from actually happening. Inflation isn’t going anywhere? and every influential idiot who insists this must be the peak - because reasons that aren’t actually manifest - is prolonging the period of inflation we have to face.
I’m fine with that ! It’ll be interesting to look back in a year and see who picked it.
My main point is: you’re arguing that this is the peak because higher rates will cause demand destruction and force CBs to lower again. But: where is this demand destruction? I don’t see it yet. At the moment we’re trapped in a cycle where rate hikes -> expectations of a recession-> expectations of rate cuts to deal with the recession-> recovery in asset values. So the demand destruction never actually happens, the wealth effect is never unwound, ergo the inflation continues unabated.
Call me an idiot if time proves me wrong: inflation won’t slow meaningfully till we’ve seen Tesla <$200 and Auckland house prices down 30% YOY.
"every influential idiot who insists this must be the peak" - I am not influential, I probably am an idiot, but I do think there is a reasonable chance this is the peak and that the reserve bank should pause the interest rate hikes for a few months just to see what effect their current changes have made. If they just keep hiking until the very delayed CPI gets back to 2% they will definitely kill the economy.
Just got back from a morning on our wonderful roads. There doesn't seem to be a problem with the high petrol prices from what I've just seen. Cars for Africa. Mind you, there's so much road works going on it's hard to know whether that's part of the issue or not. I suspect it might be.
Deflation isn't an option as it would cause widespread debt defaults.
Hence the extraordinary market intervention in 2020 when they thought we might have deflation coming up...(not even recorded deflation!) but the wait and watch approach when we have 5% inflation and climbing....
With deflation, the pain would be short and swift...but might result in depression.
With inflation...we can instead experience financial repression, a drop in living standards while debt is eroded (assuming the inflation doesn't get out of control)
That first chart shows you how overblown all of this is. Inflation was higher during a large percentage of the 20th century, often a lot higher. A few months of 7% inflation isn't really worth everyone getting so upset about.
And the notion that fiat is less stable than the gold standard is also rubbish. Look how stable our currency has been since we had inflation targeting, quite amazing really.
I'm no goldbug, but I wouldn't call fiat 'stable either. One euro in 2022 = 0.82 euros in 2015. That's a pretty remarkable decrease in purchasing power.
All charts show the dilution of money is increasing in pace too, so I would expect one euro in 2029 to be even less than 0.8 of a euro in 2022.
And look at how unstable asset prices have been since the 1990's
Also the big difference now is many countries have debt levels greater than 100% of GDP...if inflation get out of control, many nations will default on debt obligations as interest rates rise.....unless of course they raise taxation at a faster rate than the interest burden on the debt they owe....but either way its a shit sandwich for the average taxpaying citizen.
Interested to know if I am the only one thinking using interest rates to fix this is crazy, the only way it might work is by destroying the economy to reduce demand to a level that those who are not sick or isolating can keep up with demand.
Fuel- prices nothing to do with nz interest rates, war and covid mainly
Food - weather, freight, covid, fuel, war
Council rates- still have to pay it no matter what interest rates are, ocr makes no difference
Materials - largely lack of competition, been getting ripped for years,
Numerous other goods - businesses are putting up cost to pay for covid lockdowns, isolation, inefficiency
How high exactly June CPI will be and wether it will hit 7% is not so important to me. I think we need to accept that higher than 3% inflation is here for a while and we need to learn to live with it.
I think a more interesting discussion on a financial website like Interest, would be how do we best deal with it ?and how can we profit from the new high inflation environment?
right now maybe a good investment would be a short on a real estate etf
like these ones?
https://www.investopedia.com/articles/etfs/081716/3-inverse-reit-etfs-b…
I'd like to find one that covers only Oceania.
Another very good option might be to short the ECB, the euro project is cracking, but I didn't find an instrument yet for that.
oh. right, That is what I would do.
I am Not a financial advisor :D
Your money, not mine
The real issue is whether we will fall into economic depression due to the consecutive steep interest rate hikes by the Central Bank. The housing market is already showing signs of collapse, and the keep raising interest rates after they themselves caused the housing price bubble, alongside our money-throwin-round government.
I do not understand how the lessons of 1929 are still not learned: One does not raise interest rates into an already collapsing equity market.
There is doom ahead, unless a miracle happens and our central bankers come to their senses. I doubt that.
As far as inflation is concerned, what do you expect after years of money printing? Interest rate rises will not kill inflation, they will kill our economy. Good night.
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