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Statistics New Zealand says the Consumers Price Index rose 1.3% in June quarter, a rise which is far more than economists expected; August 18 RBNZ rate hike now seems a done deal

Statistics New Zealand says the Consumers Price Index rose 1.3% in June quarter, a rise which is far more than economists expected; August 18 RBNZ rate hike now seems a done deal

Inflation has soared to its highest level in 10 years - and to a much higher level than economists and the Reserve Bank were picking.

Statistics New Zealand says the Consumers Price Index (CPI) rose 1.3% in the June quarter, giving annual inflation of 3.3%.

It's the highest rate of inflation since 2011 - but that was affected by the one-off increase in GST. In terms of what might be described as 'natural' inflation, the June quarter rate is actually the highest since 2008 as the Global Financial Crisis hit.

The 4.6% jump in new housing building costs in the quarter is the highest since 1987.

Economists had expected annual inflation to come in somewhere between 2.8% and 3% - so, the actual figures have blown that out of the water.

The Reserve Bank (RBNZ) expected, with its May forecast, a 0.6% rise in the June quarter and 2.6% annual inflation. At the time it picked that as the peak. Remember, the RBNZ aims for annual inflation within 1% to 3%, with an explicit target of 2%.

ANZ senior economist Miles Workman and economist Finn Robinson said the "extremely" strong inflation figure "absolutely confirms our view that the OCR [Official Cash Rate] will need to be lifted in August, given the economy is at risk of becoming dangerously overheated".

Wholesale interest rates rose strongly in reaction to the inflation figures. According to Westpac senior economist Satish Ranchhod the two-year 'swap rate' rose by 7 basis points to 1.11% after the release.

"Interest rate markets are now pricing a 90% chance of an OCR hike in August. The New Zealand dollar had a more modest response, rising from 0.6990 to 0.7010," he said.

Price rises have been expected because of one-off global supply chain disruptions due to Covid. The key thing that needed to be watched in these figures is the extent to which inflation has been produced within New Zealand - and also the extent to which it looks like being of a more persistent nature.

Therefore the crucial thing to look at is the breakdown of domestic or 'non-tradable' inflation verses imported or 'tradable' inflation. 

Well, Stats NZ says, in the year to June 2021 non-tradables increased 3.3%, mainly driven by purchase of new housing and actual rentals for housing.

Non-tradables rose 1.2% in the June 2021 quarter.

In the year, tradables increased 3.4%, with higher prices for petrol and second-hand vehicles. This was offset by lower prices for telecommunication equipment.

Tradables rose 1.7% in the June 2021 quarter.

Some key pricing information for the June quarter:

  • Housing and household utilities rose 1.9%, influenced by higher prices for home ownership (up 4.6%) and actual rentals for housing (up 0.9%).
  • Food rose 1.5%, influenced by higher prices for fruit and vegetables (up 7.3%) and restaurant meals and ready-to-eat food (up 2.0%).
  • Transport rose 2.2%, influenced by private transport supplies and services (up 4.3%) and purchase of vehicles (up 1.9%).
  • Clothing and footwear rose 3.3%, influenced by clothing (up 2.8%) and footwear (up 5.1%).

Stats NZ's prices senior manager Aaron Beck said the cost of building a new house was the biggest contributor to both annual and quarterly inflation this quarter, up 7.4% for the year, and 4.6% for the quarter.

"Higher prices for building houses reflect both supply-chain problems and high demand," Beck said.

"Several construction firms have told us that it is hard to get many of the materials they need to build a house, and that there are higher labour and administration costs. In addition, in the year to May 2021, $18.3 billion of residential building work was consented, up 18% on a year earlier.”

The RBNZ did acknowledge in its Monetary Policy Review on Wednesday (14th) that while "near-term spikes" in headline CPI inflation in the June and September quarters would reflect short term factors such as supply shortfalls and higher transport costs, in the absence of any further significant economic shocks, "more persistent consumer price inflation pressure is expected to build over time due to rising domestic capacity pressures and growing labour shortages".

After the central bank's 'hawkish' shift economists were quick to see an August start for Official Cash Rate hikes. However, the major banks have already pre-empted this with substantial mortgage rate hikes

What the economists are saying:

Kiwibank chief economist Jarrod Kerr said what was most interesting was the broad-based nature of inflation pressure evident in Friday's report.

"Demand in the economy has been consistently strong since coming out of last year’s level 4 lockdown. And combined with supply side constraints – such as firms facing challenges in sourcing labour and materials – we have a recipe for price rises. Almost all groups in the CPI basket recorded price rises. Core measures of inflation have also strengthened. Both tradables (imported) and non-tradables (domestic) inflation popped back up in the June quarter."

Kerr said some of the key drivers of inflation are expected to be transitory. Global supply-chain disruption should be addressed as the world gets back to a new normal – taking the pressure off shipping costs. Labour shortages will "hopefully" abate next year as our, by then, vaccinated country starts the process of opening back up to the world.

"But for the RBNZ, these transitory factors could easily turn into permanent inflation in the current atypical environment. So, something has to give, and the RBNZ is now willing to oblige."

Kerr says he now expects the RBNZ to lift the cash rate in August, in what will be "the first of at least three hikes from here".

"We’re likely to see two hikes by year end, and a push to 1% by February. Beyond 1% will depend on the interest rate sensitivity of the economy coming off record low rates. We have pencilled in another lift in the cash rate to 1.5%, but likely to be all we see in the near-to-medium term. An earlier lift off from the RBNZ will (hopefully) mean less work will need to be done to restrain the economy in the future."

'Miles above expectations'

ASB senior economist Mark Smith conceded the inflation figures were "miles above our expectations and the RBNZ pick".

"The major surprises were for both tradable and non-tradable prices. We expect supply disruptions and higher commodity prices to continue to boost tradable prices further over the remainder of the year.

"Of more concern to the RBNZ is that domestically-generated inflationary pressures look to be intensifying.  Soaring construction costs in Q2 reflect the booming housing market and capacity constraints in the construction sector. The risk is that they broaden beyond housing as capacity pressures tighten throughout the economy.

 "All up, ASB expects annual CPI inflation to push higher to above 4% by the end of the year and to remain well above 2% over 2022. A resilient demand back-drop, high inflation, and an economy that is effectively close to full employment necessitates that the RBNZ promptly reduces policy stimulus. We expect OCR hikes from August and a 1.50% OCR endpoint my mid-2023, although the speed and magnitude of subsequent OCR moves remains conditional on a range of factors."

Consumer prices index

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183 Comments

49
up

Surprise surprise..... not. It’s more like 7% if the CPI data is not so badly fudged.

16
up

Whoa there Passberby. This isn't a place for conspiracy theorists. The recent substitution of Sirloin steak to rat meat was more than legitimate.

11
up

Have you seen the price of rat milk lately?

question. 50 points or more? That's what we should talk about.

13
up

It's actually much worse than 3.3 per cent: remember that house sales (i.e. selling prices) are not factored into the CPI.

TTP

And they reintroduction of international airfares which I really doubt they should since our trans tasman bubble get interrupted …
"international airfare prices contribution to the CPI was down 0.60 percentage points."
https://www.stats.govt.nz/information-releases/consumers-price-index-jun...

House prices are not factored in because they are not consumables. Same with equities and standard practice. Although not owning property/equities tend to be an opportunity cost, where rising prices effectively devalue your term deposits.

More demand for wage increases, more strikes, more misery ?

Contrarian,

so in your opinion, employees shouldn't ask for wage increases and nurses shouldn't ever strike for better pay and conditions. You sound like a modern day Gradgrind(a character from Dickens)

That was not my view. I just stated the obvious next things that will follow, because of this official drum beating of inflation suddenly. In my view, this drum beating seems to be a bit manufactured, to fall in line with what is happening in the US. May be the West is acting in concert and this is a ploy to stop the advance of Cryptos as an alternative to Paper Currency. Central Banks have to justify their existence, after all.

I know I am coming off as a Conspiracy Addict, but to quote a US Supreme Court Justice (may be David Souter), a helathy skepticism of the Government will serve the citizen well.

So the 'least regrets' policy of pouring petrol onto the bonfire - the resulting fireball isn't as contained as predicted?

The people that run this country have created a population of drug addicts, high as kites on billions of $$$ of cheap cash. In order to look good through a global pandemic they printed money like there was no tomorrow and people lapped it up, they could hardly believe that when the rest of the world was crashing down NZ the brave was partying, we were having the times of our lives. Getting rich off property, minimal restrictions, very little COVID.

Well reality is about to kick in and the bill for the party needs to be paid. The problem we have now is how do we get a nation addicted to cheap cash into rehab and off the juice? First step is to admit we have a problem is it not??? Maybe the Govt could lead by example on this one!

I would love to know the figures of how many used low rates (now historic) to pay down debt and how many partied like its 1999?

Absolutely you should have taken the opportunity to kill your mortgage. As Buffet says, do the opposite of what everyone else is doing aka not stacking debt like a crazy game of Jenga. Banks can clearly see the danger and are calling for OCR changes - why cant others?

Headwinds....new rules favoring tenants, minimum healthy building standards, record new builds and consents boosting supply, foreign buyer ban, no foreign students renters, forecast restrictions on future immigration, covid mutations extending lockdown, artificially low rates ending, personal tax avoidance angle eliminated, requirement for more investor equity, DTi's added to RBNZ toolkit, and now rates lifting which will make the stupidly low yields negative.

Whats the upside at the current market pricing again....?

But a forum clown told me to "Be quick."

Don't let facts get in the way of your rant. Please provide proof that the current government have created a population of drug addicts. With verifiable sources thanks. And while you're at it, check out what every single other country did as a pandemic response. Provided packages of support. Exactly as our own reserve bank has done.

Getting rich off property? Boomers and the status quo of the last 40 years thank you very much.

13
up

So, here we have a breach of the agreed inflation window, which is already fraught with assumptions. Costs born by businesses and consumers, but what is the consequences for overshooting? Is it just *shrug shoulders, continue to collect massive salary while the price of everything explodes*?

10
up

Just do what we do whenever there's a breach of mandate e.g. Immigration Numbers, Covid Testing. Blame the Government rather than the respective unelected departments. Why did Labour allow inflation to hit over 3%???

13
up

Govt can blame the RBNZ, the RBNZ can blame the analysts for their wayward prediction. The analysts can blame inforeseen forces...

There is no accountability!!!

Which of course assumes they have the ability to do so.

Noone could see this coming.

Come on man!
You gotta "look through" the one offs.

15
up

So, the solution is to beat the inflation down with higher interest rates.
How will that suppress prices in fuel, building supplies, unblock the supply chain, etc?

Yeah that’s where I’m at too. I don’t quite get how raising rates will help here. Is it a demand side play where less demand means lower prices?

yes thats correct the interest rates are increased to suppress demand for both businesses and consumers. People have topay more on mortgages so have less disposable income

This is a good article that explains whats happening and why interest rates help

https://www.investopedia.com/terms/o/overheated_economy.asp#:~:text=An%2....

TLDR...

Increase interest rates to collapse economy so that prices go down.

Winner winner chicken dinner.

If managed properly they won't collapse it. Record low interest rates have contributed to it.

The article just repeats the interest rate fallacy - try this one instead: https://macrothoughts.weebly.com/blog/the-interest-rate-fallacy-once-again

Well, yes?

Higher interest rate = higher NZ$ = cheaper imports.

And a higher NZD makes our exports more competitive.

And makes the move to Aussie easier with a better exchange rate.

11
up

JKB,

I can't wait for your explanation as to how a higher NZ$ makes our exports more competitive. You might want to rethink this, or just think.

Think JKB forgot the /s.

Haven't you got that backwards? If the international price of a commodity is US$1000/ton and it costs NZD$1200/ton to produce and export there is a lot more margin at a 0.6 exchange rate than at 0.8.

Wut?

Huh?

Ahhh no.
Exports worse, imports better.
Still won't fix the global supply chain

15
up

No, you've misunderstood. If we tweak the OCR in NZ, international oil prices will reduce, and tradies and cheaper building materials will appear as if by magic.

Ha - sure

14
up

Farmers are marching, actually rural communities are marching, so too nurses. Predict within the next twelve months there will be quite a few more, this will include unsurprisingly the average consumer who, from comments here now for quite a while, is feeling the pinch tightening every day.

10
up

Predict within the next twelve months there will be quite a few more

Except the migrant slaves. No time off work and too exhausted to protest.

Imported labour on building sites up about $2-5/hr across the board. Local labour hourly rates up about $5 - $10 / hr.

Both increases in the last 3 - 6 months.

Yep - that's a functioning market right there! Something to be celebrated these days

The landlords should be marching as well

Like lemmings, towards a cliff?

12
up

We are looking at stagflation in the face, a highly unusual combination of massive inflation coupled with recession, that no one in our generation has really experienced. Uncharted territory as asset prices pverinflat, we’re in a damned if you do damned if you dont when it comes to increasing interest rates. Either way it’ll hurt. Nouriel Roubini wrote about it recently….

Not a surprise to me. I was expecting somewhere between 3-4. It was mentioned that RBNZ's forecast model seems to be less effective during covid pandemic. And NZ last quarter year GDP growth indeed surprised economists and Orr. So this shouldn't be really an surprise to most people.

23
up

What I wouldn't give for my expenses to only have gone up 3.3%. What a joke. *flips table*

Recent remuneration surveys suggested that the limited number of employers who were actually planning payrises think anyone wanting over 3% is shit out of luck. Wonder how long that will persist.

11
up

And yet – when you head home tonight – the OCR will still be at 0.25% and monetary policy settings at “emergency”.

Greenspan is now remembered for all the wrong reasons – Orr seems to be determined to follow in his footsteps.

And Custard don't forget you can still get interest only loans ffs

11
up

Yes, you couldn't make up this sort of lunacy.

Make policy settings the day before the data comes out.
If they didn't know then they are dopes. If they did know, they are criminal.

Yes looking alot like Greenspan 2004

Will be interesting to see if they move too slowly to rein this in and then have to increase real interest rates for the first time in a long time...

Nothing would surprise me if we are looking at 7% interest rates in three years time....and stress testing at %10-12

24
up

We couldn’t get to 7% in three years without causing a recession. It’s not like our wages are increasing at any great rate and there’s too much debt out there to handle that. We have backed ourselves into a corner.

Exactly

Damned if we do and damned if we don't.

:)

snookered...

will be interesting to see if we get a split between Aussie and NZ rates due to Covid success in NZ and failure in Aus...

that would put another problem on Orrs plate with a higher exchange rate and exporters under pressure.

Snookered indeed. Watch the govt squirm as the 10 year bond drifts above 2% on the secondary market. They then need a new inflationary QE programme to drive those rates down or we are looking at a long recession. They will opt for a new QE programme.

that's what they were a decade or so ago...and we weren't printing like crazy then

and stress testing at %10-12

Personally, I think the ol' 'stress testing' is a myth. Banks are desperate to get the sheeple to sign on the dotted line.

29
up

I heard the Reserve Bank doesn't use white copy paper in their office. They print inflation numbers onto Overhead Projector sheets so they can look through it.

Does this inflation rate take into account 'land' value? The bit the house sits on?

It doesn't include anything to do with reak estate. They have keep it out of the formula.

Wrong, it includes house prices and rents but not land prices

I thought house prices were not included as they are not consumable, only build costs included?

Build costs = the cost of the house, not the dirt it sits on.

So that land value component is what house owners are rated for in the council rating for 'Rates?"

It's not in the CPI, so it's not defined....

If it did - the OCR would be about 10% to reflect the hyperinflation in land values.

Yes and now any idiot out there can see the real inflation is 10% so Orr has to finally do something about it.

But now he can't do anything about it - which is the new elephant in the room.

of course he can, lifting OCR back to 1% is only putting us back to where we were 18mths ago.

Sure a little more pain for some who have purchased over that time but given the stress testing is at much higher levels, so wont cause any dramas. It will reduce consumption, which is what is needed.

I'd wager an OCR of 1% is beyond the realms of possibility. Happy to be wrong.

I was meaning over the next 6 months not immediately

Well, RBNZ talked a good game on looking through transitory inflation this year. Now let's see them walk the walk.

Is it bad or is just the news and media sensation?

Let's print more money and borrow more. Let's don't think and buy houses at inflated prices from each other and feel happy about it. This will be good for the economy. Is this not what we have been told?

So why the panic now?

16
up

The government urgently extending 16k low wage visas has something to do with this.

People in skilled work will bargain for big pay rises but the low-skilled Kiwi continues to get blindsided by team Cindy.

18
up

An emergency raise of the OCR is now required. Orr has no excuses left for not raising the OCR back to 1% next month.
A 0.25% raise next month, which is becoming more and more likely, would not be sufficient, if we look at all the data coming in regarding employment, business confidence, inflation etc.
The alternative is to wait and being forced to raise the OCR at a much steeper level later on, if higher inflation gets entrenched.Are you going to take the Blue Pill or the Red Pill, Mr Orr ?
Time to get to grips with reality, Mr Orr, and to wake up. The fool's paradise of ultra-loose monetary conditions is about to end, one way or another, regardless of the incompetence and tardiness of the RBNZ.

He will use Section 12 of the RB act, as he rightly should.

I’m glad you’re not in charge.

Anyone got the August date marked on their calendar as yet ? When is it ? Its going to get tricky with TD's and mortgages now picking the go short or go long. Is this going to be just a glitch or the start of a steady rise with each OCR announcement ?

It's on the rbnz website, not hard to find, in the monetary policy section

18th August is the answer then using less letters.

¯\_(ツ)_/¯

I didn't know the date off the top of my head and wasn't going to do your drudge work..

29
up

Oh well, at least our central bankers didn't spend the last couple of years recklessly blowing a housing bubble over the top of a housing bubble.

Imagine how awful having to increase interest rates to counter rampant inflation would be then.

Still a margin in there that recent home buyers will just have to absorb. There is a threshold however that the RBNZ will simply not want to cross the line on or there will be a huge collapse. Its going to have to be a controlled ascent over 3 or 4 years or it will be carnage.

18
up

The RBNZ didn't care about the boom, why should they care about the bust?

To do so would expose them as crooks that are biased towards house price inflation.

They'll bluff their way through. If house prices are down more than 10% YoY at any point, they'll find a way to cut the OCR no matter what the CPI or unemployment are doing.

Silly question, do you care if someone puts $100K into your account for winning Lotto or takes out $100K by mistake ? Everyone wants a boom but never a bust.

The third unofficial mandate ^

By "everyone" you mean those who had homes before the paper value of them went up.

Its going to have to be a controlled ascent over 3 or 4 years or it will be carnage.

The ol' belief that inevitable popping of bubbles is prevented by flicking a few switches.

Yes it can be prevented it just depends on what happens in the rest of the world. Orr has only a narrow band of control, if the outside influences that he has no control over like freight rates and fuel prices surge then we are all in deep shit. Its time for some to hold onto their hats and for others its time to kiss their arses goodbye.

Yes it can be prevented it just depends on what happens in the rest of the world.

Same old nonsense is trotted out through the media to convince the people that somehow the NZ ruling elite is superior to other ruling elites and that they can control everything. And it's always someone else's fault or 'nobody saw it coming'. The sheeple buy it. I know more than a few people who understand probabilistic outcomes and can see the potential of a massive crash in NZ. Doesn't mean it will happen nor does it mean the flicking of switches can prevent it.

Yup - highly leveraged households slam their wallets shut faster than low leveraged ones. Guess whose spending the over-heating economy is mainly being driven by. Once that happens, all the diddling in the world with the OCR won't stave off what is coming.

Oh well, at least our central bankers didn't spend the last couple of years recklessly blowing a housing bubble over the top of a housing bubble.

Nah. I reckon the property bubble has been going longer than 2 years. You have a recency bias related to central bankers but this is simply the tail end of what's been happening since pre-/post-GFC in terms of the alliance between central banks, commercial banks, and dear old Granny Govt.

Absolutely correct, that's why I said a bubble on top of a bubble.

Absolutely correct, that's why I said a bubble on top of a bubble.

You're suggesting that it's not the same bubble. Like it's a new bubble merging with the existing bubble.

There was a notable levelling off between 2017 and 2020. It was as if we had finally reached peak retard, until Orr and Bascand came along and redefined the meaning of the term. This was a new phase, but you're correct it's the same bubble.

Let's agree to disagree. Peak retard might have happened closer to 2008.

22
up

"Labour shortages will "hopefully" abate next year as our, by then, vaccinated country starts the process of opening back up to the world."

Hopefully not

14
up

Hopefully not

Yes. Arguably, labour shortages are a good thing if you're looking for a job and the migrant slaves cannot make it to shore.

10
up

Not just the fact of (perceived) shortage but the needed reallocation of labour into productive activity

Not just the fact of (perceived) shortage but the needed reallocation of labour into productive activity

As Lord Key would say, 'it's a nice problem to have.'

Banker rehabilitation camps on dairy farms

not a chance -- only the Aussies are wore than us for vaccinations -- and Labour is backed into a massive corner with its no deaths are acceptable policy -- 1500 people die each year from ordinary flu and the vaccines for that are way less effective- Even if we reached 70% fully vaccinated we are still looking at large ongoing deaths - mostly older people with significant other health issues -- if we dont accept that then the only option is a closed border and as we have very limited MIQ capacity ....

ps -- i am totally cool with keeping it closed for another few years and catching up on building houses personally though- not sure its the right option for the country though

I for one accept no deaths ever, i will therefore support any political party that implements a credible policy on immortality.

"far more than economists expected"

Yes, but if we were watching the eye-watering debt injections and the pending scarcities, the out-of-touch asset 'prices' - sooner orr later, for a short burst, this had to happen.

But it can't last because it will be self-defeating. Real depletion is beating us now

18
up

This was all totally predictable (as I did) prior to Christmas when it was clear that the economy was no where near as badly effected by covid as they were assuming. Rather than pull back with the stimulation (as I suggested) they have continued for over six months now with their foot hard to the metal. Absolutely irresponsible and totally incompetent lunacy. It was totally predictable that this would put house prices through the roof (as I did).
I firmly predict now that we are going to loose 10's if not 100's of thousands of young Kiwis because they have had any hope of ever owning their own home well and truly smashed.
It is bad enough that our elected representatives are totally incompetent and out of touch with reality, but is totally unforgivable that the so called experts are worse. Heads need to roll.

Nobody cares about your predictions. Least of all the RB

Well certainly as far as the RB is concerned, I could not agree more. It is blatantly obvious. That does raise the question, "just whose interests do they care about?" "whose interests are they serving?"

No just younger people.

We are looking at a move to Aussie as the prospect for our kids future is a lot better, the climate is an added bonus...

you mean the droughts, fires and floods? Long term NZ is in a far better place to survive the onslaught of climate change - which is the biggie.

Yeah Australia is already one big desert, its likely to be uninhabitable in 20 years time if the current trend continues, which only begs the question how will NZ cope when all the Kiwi's over there start to return ?

All those citizens showing total commitment to NZ you mean? Perhaps NZ should return the favour?

duplicate

I had a good conversation with a senior nurse of 40 years experience.

She said absolutely nurses are leaving in droves already. Why wouldn't they go to Aus. So they leave.

I would too.

Ageing population, acuity level increasing, patient numbers increasing. Only one thing not increasing.

She says health system not in crisis yet but 20 years will be totally dire if things continue as they are now.

If I was the guy pulling the coffee shots at my local getting up at 5am, on $23/ hour I'd be despairing.

So I guess the majority of debt owners won't be spending any more money in the economy any more and will focus on servicing their debt. Interesting point to make is that inflation is mainly caused by the global supply chain COVID disruption. It isn't "a true picture" of local inflation, but created because of the pandemic. Will be great to see what happens when global supply chains are fixed, and how this will then affect inflation again.

Great news for the overall economy, and the lower wage earners who are, ironically, part of the group who can't afford a home.

no just supply chains, the loose money conditions have put the building industry into a boom, plumbers, builders and sparkies are booked up, they can and are charging a premium

'.....August 18 RBNZ rate rise now seems a done deal'

Le the time come and RBNZ is bound to delay it ........obviously with some excuse/justification.

Not to be surprised if Mr Orr changes the tone / shift the goal post from 2% - 3% to 3% - 3.5% or even 4% and how good it is for the economic.

Poor Mr Orr now is forced to act or to keep on changing the definition of 'Transitory' inflation besides the target.....even at 5% plus will have reason to convince, how good it is for economy.

3% or over was entirely expected. Global rebound will be short lived and despite the sky is falling interest rate hike headliners rates increases will be a temporary blip for a year or two. The world economy is on a deflationary spiral and has been for years.

Agreed with what others here, while not predicting are all but saying. Inequalities will only be exacerbated going forward, real CPI that most of us know will continue to rise and nothing much will change.

In wider terms this is true as in trend lining.

But the one thing that has been inflating out of all proportion is Debt. Corp Debt, Consumer Debt, Govt debt.

When it all blows, we will know what deflation is!

Right now though in NZ inflation is being felt in the household and there is no doubting that. It is probably closer to 10% than 3%. So something needs to happen before the civilians revolt.

Incrementally, then all at once. Inner cities not the place to be

Kerr says he now expects the RBNZ to lift the cash rate in August, in what will be "the first of at least three hikes from here".
"We’re likely to see two hikes by year end, and a push to 1% by February. Beyond 1% will depend on the interest rate sensitivity of the economy coming off record low rates. We have pencilled in another lift in the cash rate to 1.5%, but likely to be all we see in the near-to-medium term.

Hmmm ... OCR at 1.5% - that means the RBNZ will have to pay significantly larger sums to banks on their QE related reserve assets ((Bank Settlement Accounts) and a further amount as the government dispenses it's bond sale proceeds (Crown Settlement Account) to beneficiaries.
Ex RBNZ economist, Michael Reddell thought it necessary to make this comment;

One of the incidential curiosities of the bond purchase programme is that at times like this you hear a great deal of talk about how it is a wonderful time to borrow and the government can lock in very cheap long-term funding. And yet what do really large scale central bank bond purchase programmes do? They transform the liabilities of the Crown from quite long-dated to increasingly quite short-dated, exposing the Crown (us as taxpayers) to really substantial interest rate risk. Perhaps at the end of all this the Reserve Bank will have $50 billion of government bonds, with a representative range of maturities. On the other side of its balance sheet, it will have a lot of very short-dated (repricing) liabilities – all that settlement cash (see above). Whether the Bank eventually sells the bonds back into the market – which hasn’t happened a lot in other countries – or holds them to maturity, the interest rate risk doesn’t go away. It isn’t obvious what public interest is being served by skewing the Crown’s (net) debt so short term. Perhaps interest rates will never rise again……but that won’t be the view many people will be taking... Link

One can begin to see why banks were not overly keen to engage with the RBNZ's FLP funding scheme..

How do central banks fund IOER if the income from their assets can no longer cover it? or does this limit the rate?

Currently the government is paying approximately 3.0% on it's publicly issued debt balance. If the RBNZ through it's LSAP bought the same cross section of outstanding coupon issues it would in receipt of the same. Thereafter, the RBNZ could conduct sales of the bond portfolio back to the public to reduce it's liability or call upon the government to fund it.

The face value of the government bonds would be much lower that the LSAP purchase price. How would the reserves be "bought back"?? if interest was not saved, i would guess the average return on purchased assets would be just over 1% at best.
Do you know if there is an example of a central bank raising rates with a large balance sheet?

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Now we await the associated move - that being a decline in asset values.

I know it's not the asset class everyone is thinking about, but interesting to see the NZ50g hasn't budged on the news. Perhaps when those new interest rates start to kick in and people dip into their Sharesies accounts to pay down the mortgage (or just the interest).

I hope some sell that extra rental property, get near debt free soon. Big debts should be a worry for mums and dads.

I definitely think Orr could surprise everyone next month and November with bigger moves up with OCR. Could be OCR 1.0% next month.

Orr gave everyone a crash course in QE in NZ. Same again maybe on the way out.

Orr will be watching the FED. Hoping they make the first move.

Zero chance the Fed will raise before us

So all of our anecdotal evidence now proves to be correct. Quelle Surprise!

Petrol already up over 8c a litre since these numbers were compiled. Next quarter should be fun.

Back office of RBNZ:
Orr to room. Hmmm, do we need to implement an emergency OCR increase?
Room: Mumble mumble mumble.
Orr: It should be common sense, interest rates control inflation. Right?
Room: Mumble mumble mumble.
Orr: Right?....Right?....

One has to wonder what 30 years of deregulation have bought us....

Aren't we back to square one with the govt,I mean the RBNZ, deciding on which sectors will get access to capital and at what cost.

And people in Wellington pulling the strings and trying to manage the economy.

What could go wrong?

An interesting finding in stats nz's report:
"Reintroduction of international airfares
We are starting to see some international routes having more passengers on flights (due to quarantine-free travel to certain areas in Australia and Rarotonga) and we are starting to reintroduce the price movements for these routes back into the CPI. When these missing items are reintroduced, their weight in the CPI will be much lower than pre COVID-19 weights due to the longer-term impact COVID-19 is having on travel."
"International airfare prices contribution to the CPI was down 0.60 percentage points."
https://www.stats.govt.nz/information-releases/consumers-price-index-jun...

Guess without international airfare prices contribution, the inflation rate could hit almost 4%. Taking considering of our trans tasman bubble is still getting interrupted, I would argue whether international airfare prices should be included... That gives us a glimpse of how future CPI get impacted when we open our border...

Breaking news: It's a scorcher: Annual inflation soars to 3.3% - a 10-year high as per David Hargreaves but what about Mr Orr. Obviously he was not ignorant of what was comming and has a defend that no want canargue that it is transitory as no one has seen the fututre and though most have doubts as to what Mr Orr is saying is BS but ........

If offical inflation is 3.3% can imagine what the actual effect is on household as is multiple of offical data - like the weathermen when they say temeperature is 4 degree but effect is 2 degree similary offical inflation if 3.3% but effect is between 16.5% to 23.10%

Today Mr Orr is preparing for justification of high inflation and should also prepare another speech for future, after his definitation of temeprory (Whatever his term of temeprory is for him ) why inflation is still high..may be he has left by that time and is left for next governor to clear his dirt.

Bit extreme isn't it? Do you think he should be put in the stocks and buckets of over-ripe tomatoes handed out to people? Orr has done what any bureaucrat would have done.

Yes, indeed, inflation, interest rates and the OCR are important, but has anybody thought about the availability of credit, that is, actually being able to refi your mortgage ? It's beginning to look like we might be seeing some frightened bank sphincters already. And increasing numbers of some very impressive bond defaults tends to do the same thing.

What a balls up. RBNZ were so quick to implement emergency monetary conditions to counter the "worst case" covid scenario. We have clearly dodged the worst of it, yet they continued to keep what are drastic emergency measures in place while NZ returned to normal.

Now it looks like they will have to aggressively tighten monetary conditions, creating a dangerous recipe for those tempted to take on massive debts by the low rates.

"We have clearly dodged the worst of it".
So far.

I would replace "tempted", with officially encouraged. Now the rug will be officially pulled.

thank goodness the nurses got such a great payrise

Just pay them out of the inflation component of our taxed earnings, we all know we aren't getting that back any time soon.

Doesn't take an economist to see this - we are all seeing it at the petrol pump, the grocery store, etc every day. Pity Mr. Orr can't see it.

14
up

And hence the utter anger and frustration out there Edward. The younger generations are getting really really pissed off with the management of this country and who can blame them.

I pointed this out already, but the real kick in the face for young Kiwis and those who are still renting in student flats at an age when their parents were able to start family is they voted for a party who promised to fix this, and who subsequently made it worse.

They have no further recourse as they watch the country they were born in spit in their face over and over again, they have done all they can in a democratic society. The only logical alternatives are to a) leave it, or b) overthrow it.

If only it was spit.

It's more like a word that rhymes with spit.

I think you misspelled it, seeing property get sold doubled the price considering 2017/2018 price and Cindy is unaware & starting BSing about it in front of camera with tilted head.

It's not spit, it's shit in their face.

What's it called, that syndrome where kidnap and abuse victims fall in love with the attacker/ abuser?

Stockholm syndrome maybe.

Don't understand why the young keep voting for someone who just says what they want her to say.

Are they really dumb or what? I just don't get it.

Agreed - and the elderly also. My children will never be able to afford homes and my friends (elderly without rental property) are watching every cent they spend these days.

Mr Orr can see his and his children net worth rising and than who cares

Mr Orr can see his and his children net worth rising and than who cares

Had to laugh at Grant Robertson's response to link it all to growth in the economy. Anyway, I think there is worse to come as looming interest rate rises will affect mortgage service costs and the continuing rise in oil prices may well be compounded by a falling NZD. Even if RBNZ interest rate rises prop up the dollar there will still be pain for over-leveraged households.

if we raise the OCR ahead of other countries our dollar should stay somewhat stable, providing inflation doesnt fly off the deep end

FM - Robertson say High inflation is problem of growth....

It is not problem of growth but problem created for artificial growth.

more money chasing the same amount of stuff

Economists…. Sack the whole lot of them along with all their fake metrics……

Gold is tested by fire. Newbies will probably be surprised at how resilient the golden standard of a investment class is in this country.

Not surprise when anything that moves get taxed by Labour. The increased cost has to go somewhere.

If you think labour created this you are a blinkered political tribalist moron.

haw haw ....all going swimmingly well for us here in the top 0.1% ....what's a tiny interest rate increase to worry about, let alone a contorted CPI ? .....are you all sailing that close to the wind, that an extra interest repayment means you have to trade in the Range Rover for a "common as muck" SUV haw haw .....you should of all paid down your debt while you were making hay in the sunshine ....... and save it for all those "bargains" that will be falling at your feet .....oh well , never mind ....you'll just wait for the next round .....but will there be a "next round" .........haw haw

Love your comments, so good of you to come in from the beach and stop drinking Cocktails long enough to type a few words.

Charlie also picks up his super every 6 months what what

frazz ol' boy .....the only "super" I'll be picking up is that "super" new Gulfstream G650ER sitting on the tarmac at Owen Roberts Airport, George Town, to fly me to Paris and my 5 bedroom apartment over looking the Seine .....haw haw

"The drums are beating once again for policies to raise interest rates; refer Monetary Stimulus Reduced (RBNZ) and Interest rates and inflation – shifting sands, what next? (Radio NZ). Rising interest rates will only aggravate inflation pressures in the short term, and they will create new rounds of financial and social distress in the medium and long terms. They will not do anything to resolve current labour-shortages and supply-chain problems." K Rankin is making some sense!

https://eveningreport.nz/2021/07/16/keith-rankin-analysis-inflation-fear...

My biggest concern is how dumb most of the government ministers and economic commentators have sounded in their responses today. Anyone legitimately surprised we have rapidly rising inflation after all this money printing, low-interest borrowing and high-profit housing transactions can't be taken seriously on economic matters.

Add to that the current tight employment market and almost everything points towards strong inflation. We have low productivity and the global shipping markets are moving slowly. This is only the start. Interest rates will continue to rise and the crunch will begin with people over-extended on their mortgages.

My biggest concern is how dumb most of the government ministers and economic commentators have sounded in their responses today. Anyone legitimately surprised we have rapidly rising inflation after all this money printing, low-interest borrowing and high-profit housing transactions can't be taken seriously on economic matters.

Add to that the current tight employment market and almost everything points towards strong inflation. We have low productivity and the global shipping markets are moving slowly. This is only the start. Interest rates will continue to rise and the crunch will begin with people over-extended on their mortgages.

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As that fine servant of the elusive 0.1% , the great Sir John Key once said, "high house prices are a good thing to have" ...it throws the serfs a bone, to make them work even harder to pay that mortgage down ....haw haw

Now with interest rates on the rise ....it just transfers that much more fiat capital to moi and my ilk.... and I need those funds to buy those "distressed assets" at bargain basement prices ol' boy ....haw haw

Toodle pip for now from the balcony of my holiday home on 7 Mile Beach on the Cayman Islands - "no tax there" I here you say.....spot on and so perfect for my world wide holding companies dear fellow ...you should be saying "tax, what tax ?" ...... haw haw

double post ol' boy .....the connection can be a bit "iffy" on the island

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O nah but the economy is back to normal what a load of BOLLOCKS,
Borders still closed.
No paying students.
No tourists
Small business FKD but government will give you options ( Bollocks )
Trying to build a house FKD cant get materials or book inspections, even regional towns to book inspection is a week out at least.
Shall I go on.
Prepare for the onslaught if you dont have assets that produce an income you are FKD
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Anyone else here want to start an actual prediction ? I'm going back to 1.0% by November. Not sure what the combination of percentage rises will be before now and then but 1.0% total in the 24th November OCR before the summer property gold rush to try and rein it in.

I bid .75

This is the tip of the iceberg as compliance costs grip and choke small businesses to death.
What we saw with the farmers protest is not an isolated stance against a government that is clearly out of its depth.

Hopefully more people will wake up to the governments incompetence particularly their esteemed leader. Worst, most divisive PM ever.