Consumer inflation hit a three-decade high in the December quarter, due to both domestic and external factors.
The Consumer Price Index (CPI) rose 5.9% from the December 2020 to the December 2021 quarter, and 1.4% from the September 2021 to the December 2021 quarter, according to Statistics New Zealand.
The annual rise is well beyond the Reserve Bank's (RBNZ) 1-3% target range, meaning it will have plenty of ammunition to keep lifting interest rates. The Official Cash Rate is at 0.75% and is next due to be reviewed on February 23.
Economists are increasingly saying inflation is now embedded and not "transitory".
The December quarter CPI figures are slightly above those forecast by the RBNZ in its November Monetary Policy Statement. The central bank forecast annual inflation of 5.7% and quarterly inflation of 1.2%.
The figures are however fractionally softer than those forecast by some bank economists. Overall, their publication had a muted impact on the New Zealand dollar, which is trading at 66.5 US cents.
Details
Price increases were widespread with 10 out of 11 main groups in the CPI basket increasing in the year.
The main driver for annual inflation was the housing and household utilities group. The price of building new housing was up 16%, rents were up 3.8% and local authority rates and payments were up 7.1%.
Transport prices also rose 15% over the year. This was mainly influenced by higher petrol prices, up 30%, and purchase of second-hand cars, up 12%.
Food prices were another key contributor to the annual increase, up 4.1%. Vegetable prices rose 14%, and milk, cheese, and eggs were up 7%.
Housing costs also led the increase in non-tradable goods and services, up 5.3% in the year to the December 2021 quarter.
Meanwhile higher petrol and vegetable prices led the 6.9% annual increase in tradable goods and services.
Looking at the change between the September and December 2021 quarters, non-tradeable inflation was slightly higher than tradeable inflation (1.5% versus 1.3%).
Reaction
ANZ economists Finn Robinson and Miles Workman said it was surprising to see how hot inflation driven by domestic factors (non-tradeable inflation) was.
They noted pricing pressures are coming from all angles - supply chain disruptions, higher labour costs, disruptions due to Covid-19 restrictions, high demand domestically.
"These are troubling numbers for a central bank that has only just embarked on its hiking cycle - even if the RBNZ has been quicker than many international peers to recognise the change in the wind and raise rates," Robinson and Workman said.
"There’s more work to do in order to bring the surging domestic inflation impulse under control - and that will weigh on an economy that’s already struggling to grow in the face of ongoing COVID disruption."
Similarly, ASB economist Mark Smith said, "Our view has long been that high inflation in New Zealand is not transitory. Capacity bottlenecks, supply constraints and resilient demand conditions are expected to keep inflation elevated.
"We expect annual CPI inflation to peak above 6% in early 2022 and to remain above 3% until later in 2023. Given the extraordinarily tight labour market, wage inflation looks set to accelerate in 2022 and this in turn will put upward pressure on future CPI inflation rates.
"Persistently high inflation and an extraordinary tight labour market backdrop and outlook warrants a faster pace of OCR hikes and a higher OCR endpoint. High and persistent inflation rates in many of our trading partners mean that the RBNZ will not be the only central bank hiking rates this year.
"For now, we expect a measured pace of 25bp hikes and a 2% OCR peak in late 2022, but events can change quickly."
Craig Renney, economist for the Council of Trade Unions, which is calling for a minimum wage increase, shared a different view.
"Workers wages are not driving the current inflation changes," he said.
"The latest data from on wages from Stats NZ shows that 42% of New Zealand workers did not get a pay rise at all last year. More than 80% of workers are getting pay rises less than inflation. Overall, the Labour Cost Index shows that wages increased 2.4% last year.
"Whilst some economists may be worrying about a wage/price spiral, we have yet to see increased costs feed their way through to increased wages."
286 Comments
Lab has fiddled while the poor and middle class burn under inflation. Their core voting group to boot. I guess they have protected their rental portfolios though. How many does Helen have again...?
Yup the average young person is now having their first home deposit inflated away faster than they can save for a home. Fun times.
The question is how will the RBNZ respond?
Economics 101. If central banks were to put a whole lot of near zero interest cash into the market at the wrong time or for too long you risk high inflation. Can these central bankers remember the first year of their degree ??
Probably depends if you are following the instructions of a Finance Minister with no such understanding or education
Which is common in NZ's finance ministers and obviously part of how we've gotten to a situation of unaffordable housing and record household debt over the last decades.
Economics 101 is opportunity cost, just saying.
its transitory to its embedded in 3 months must be teaching them spin first economics second
Is the public sector wage freeze still in effect?
It never was. All you have to do is change jobs and voila! pay increase. A stupid idea probably dreamed up by a Minister. Any analyst worth their salt could have spotted the fundamental flaw
There are too many Public Servants full-stop. And too many earning too much for doing little . Any objective observer in Wellington can see that .
The public sector doesn't stop in Wellington, and yes govt has been stealing staff from local councils because the pay is better and the bureaucracy is ever expanding. Now councils are short staffed and struggling to keep up with all the filled out forms that have been filed.
The only core public servants impacting inflation are Reserve Bank idi.. staff , and the wonks in Treasury who ultimately control fiscal policy.
Yes for ‘high earners’ deemed as earning >100k. Govt refuses to give any of them a payrise which is a therefore a 5.9% paycut for senior nurses and doctors amongst other public workers. Health is angry and not willing to play ball in these conditions. Good luck with the COVID response.
Listen, she postponed the wedding. What more do you people want !!!!
Who cares about the wedding. May be she changed her mind and doesn't want to get married to that guy. Who can blame her.
She probably wants to run to the woods rather than getting married.
Marriage is still possible, if believe in simplicity.
Even this site attracts the small minded. Shes done a remarkable job in a global shambles bringing intelligent expert groups together in every arena, then acting on that best practice advice. Yes she did a National party on housing but even those self serving right wingers still complain. Shes the best PM in my 65 years by some margin. Stay on topic.
Even though I didn't like him or his policies I think Key was a better PM. And Clark.
I would say by and large our PMs since the first Labour Government have been decidedly average. Which probably says more about the general public than it does about them.
Compared to say ScoMo, Boris, Trump, Biden, etc? God I would say ours have been outstanding comparatively, both red and blue.
I mean, compared to any of that lot Pol Pot looks outstanding.
most of the problems we have today were from Key/English tax cuts / no investment policies. Had they built houses when the housing market turned, or built hospitals, or public transport, we would be in a much better position. It’s easy to criticise labour (and they deserve it too), but it is much harder for govt to build houses when the private sector is in full swing compared to when it is in a slump.
To me it’s the number one rule of government: borrow and invest in a recession, don’t invest when the private sector is pumping. But Key/English didn’t after the GFC, and now Labour have no choice. I didn’t just make this up now, I was making those comments all through Key’s tenure.
Almost all of our infrastructure problems and housing issues can be traced back to pre-Key even being in Parliament.
Huh? You don't like Key's personality or his policies but you still think he was the bee's knees? Yikes.
Can you read???
I didn't say he was 'the bee's knees'. I said in my opinion he was a better PM than Ardern. But I don't rate her very highly at all, so it's a low bar.
I thought Key was a good 'managerial' PM. Well organised and generally well respected. And he got a lot done, even if I didn't like everything he got done.
He actually got things built.
Ardern has got through a reasonable amount of legislation - the only problem being a lot of it is poor and full of likely unintended consequences.
Don't get me started on her inability to lead building and infrastructure programmes - woeful, especially with such a large majority.
Although far from perfect, I'd rate Clarke the best of the 3.
Be good if someone could list what Key built.
There is more infrastructure being built, and deals signed, under this government than I've seen in my moderately lengthy lifetime.
I voted for him twice but I can't agree that Key was much good. He was good at getting the job and keeping it, but he didn't do anything of value.
As the NBR summed up when he retired:
He came. He saw. He left.
Shes the best PM in my 65 years by some margin
Can I ask if you own a house or two (or more)?
sure you can ask, we have a house, just paid off, had all sorts of pressure and opportunity to leverage and buy more but asking a hard working kiwi to pay something off for me seems morally wrong so just one house, been thru the 22% interest dramas, bugger all kiwisaver but a few more years work will help. I'm no fanatic either way, but this lady has projected a thoughtful, mindful and decisive set of parameters...sure there may have been other ways but someone has to make the call. Better a grassroots kiwi chick than a money trader I say (that sounds fanatical) but this and the last govts giant failure has been the reckless transfer of money to those who already have plenty(Bernard Hickey)
Ha haa, is this a joke? "in every arena", except economics... taxation... housing... competition watch dogs... you know, all those things responsible for what this article is about.
COVID health response? Damn good and kudos where it's due.
Climate change? Absolute shambles.
How Sanctimonious, everyone who doesn't like the PM is small minded huh? Well I'm still locked out of NZ for over two years and has taken a extreme toll on me and my family (and countless others}. NZ government abandoned it's own people overseas. No other country had a lottery to get back. Absolutely disgusting and shameful. I flew in from Malaysia to Singapore. 2 PCR tests, 7 art tests and can go out and about. But those intelligent expert groups in NZ group could only come with let's lock out own people out why? because I'm alright Jack! She's the worst PM in my 50 years
waste of time sneaking Lorde in then.
1 in 9 working age nz's are now on some form of benefit. Doubled in the last few years.
NZs government debt is skyrocketing, over double what is was 2 years ago.
Child Poverty on most measures worse under this recheme. This inflation will push many to the breadline. Worst government in NZs history
I wish this was the case my friend but in regards to the benefit that is a significant under-shoot. 1 in 9 are on an unemployment benefit but then there are other benefits, the biggest in working for families.
The last time an analysis was done in 2015 revealed some interesting situations. In the 2013/14 tax year 44% of tax-paying citizens paid less in tax than they got in benefits. Of the remaining 56% that paid all the actual tax, the top 4% of tax payers paid 40% of the tax. Yeah 4% of tax payers pay 40% of the tax...
I agree with you on Labour's "performance" easily the worst of all time bar their key focus of the response to COVID where they have been very good.
"1 in 9 on benefit" what? getting something for doing absolutely nothing...sounds like a property speculator to me...beneficiaries are the least of our worries, I made 3 times my salary on my house this past year...now thats bludging...yeah theyve continued the Nats neo liberal capital gains fiasco in fear of falling foul of the mortgaged middle class and should be held to account for that...they need a real person like Chloe Swarbrick as finance minister...now she will rattle the gilded cage
Your rant is more to do with political cal party then actual cause
In case if you don't know, house price is not measured in CPI
Inflation is across the board all over the world
blame QE and free money
Property speculators are beneficiaries.
Would be interesting to see the true number if housing was properly accounted for.
And the huge increase in rates (incl targeted rates, petrol rates) + water bills.
House insurance premiums are through the roof.
TTP
How surprising . Between incompetent local authorities , banks and insurers Kiwis are being dealt to without mercy.
Every things going up, and workers with justification are aggressively looking for pay rises of at least 5% to keep up in NZ. Look at the rent prices.
Use the equity mate.
Why the NZD just lose 0.5%?
Probably because an even higher number was priced in. Estimate was 5.7 but many were thinking 6.5+. So 5.9 is arguably below what was priced in prior to the announcement. I'll be curious to see how the swaps move.
It didn't, that was before the announcement. USD strength/risk off, the usual story. Market reaction suggests the inflation read was broadly in line with expectations.
Inflation of prices for essentials, will continue to climb. Non-essentials may well tank. We have now hit the global Limits for many things - but energy is the key, and energy underwrites all else.
Buckle up - it's going to be an interesting ride. And of course, putting up interest-rates can cause pain, all the way to collapse of the system - but putting up interest-rates cannot solve scarcity.
Interesting times. So to speak.
No it cannot solve scarcity, and worse, prevent the escalation of prices squeezed up by said scarcity. Inflation will too pressure services, both in terms of rising cost and ability to avail of them. For instance retirees have had two years of negligible returns on their savings. Capital has been spent to bridge. Now up goes the cost of living. Sacrifices such as relinquishing health insurance cover are made. Considerable impact on public health services as that is the age of increasing vulnerabilities, frailty and illness.
I do not disagree with the obvious fact of limited resources, or the essentiality of energy for everything. But I disagree with your analysis that this CPI is and indication of very near term collapse of everything. The whole world printed money, at a time that production of most things were down due to a pandemic. Increasing the quantity of money at a fast pace that increasing the quantity of things that money buys, results in inflation. This round of inflation is by some considerable magnitude the result of money printing.
I say we blame the unvaccinated for this CPI print. They are our new societal scapecoat.
So far the virus itself has done very little, and vaccinated people have had no opportunity to prove their superiority. What we have been dealing with are the symptoms of the preventative actions govt has taken. Whether they have been worse than the actual virus itself remains to be seen. So far it looks as though the RBNZ has been easing up until the virus becomes an epidemic here and now that infections look set to rise, interest rates are going to go up.
You realise the above was a troll post?
You mean not the colonisation ?
My anger at the RBNZ has turned to pity. They are obviously out of their depth. Who can they turn to for help?
Maybe the large number who left there recently were the competent ones. Leaving behind the distracted woke PC ones.
It was only a matter of time before we started having "woke monetary policy", I say embrace it.
I am considering applying Maori principles to whatever the IRD thinks I owe them this year.
LOL, brilliant. Upvoted.
I wonder...how is transferring wage/savings wealth to asset owners "woke"?
It's not, at all.
But the RBNZ is full of woke rhetoric.
As is Ardern, while the wellbeing of the working class, who are supposed to be her core constituency, gets worse.
From Working Class to Woke Class. Shame on you, Ardern/Labour.
Words vs. actions. What consequence are "woke" words if they have zero impact on actions?
Agree that Labour are no longer leftist. We basically have a single major party with different wings and their donors.
Even Phil Goff changed from a supposed leftist to a just another NIMBY conservative.
Oh well, my small govt super monthly payment will finally crank up a notch.
I now have 10 years of coasting down a hill before I get it, got to make everything last now.
Might just have to get a job like everybody else...
Hopefully not its a pretty high hill, just passed a sign that said "Base Camp is this way"
Just a reminder - the CPI is only one of several considerations for the RBNZ, albeit an important one.
The only other consideration is "maximum employment", whatever that means
Plus the financial stability objective. Increasing the OCR too much could affect financial stability, given so much of the NZ domestic economy over recent years has relied on low interest rate settings.
Of course financial stability is also threatened by keeping rates very low and creating a housing bubble!
So there's some sort of midpoint required - to help tame inflation and the bubble without destroying the economy and generating much higher unemployment.
That's why I think the OCR will rise no higher than 1.5-1.75 %.
The CCCFA will assist in taming inflation (taking some of the load off the OCR) even if that was not its intent.
The low OCR was put in place for emergency period and will go back up,the NZD is already tanking which will push up inflation the FED is only talking about raising rates once they do in March NZ will have to raise rates not much NZ government can do.people were pulled in by low rates borrowed way to much over paid for housing now With inflation at 5.9% interest rates should be around 8%.House mouse you are wishfully thinking if you are predicting rates will be under 2%
I appreciate mine is a minority view. I know VTHO has a similar view, and maybe Yvil? But no one else I am aware of here.
I guess we will see where things land in the next 6-9 months.
I don’t think you will be waiting long.hopefully HM you are in a good position as normally you post have some good advice.
Haha, 'normally' :)
Let's see if this advice is surprisingly good :) Just a reminder - it's what I think *will* happen, rather than what I think *should* happen.
Like anyone I would rather not pay a huge amount more when I re-finance end of this year, but luckily some debt that I am paying off will be finished by November.
Even if retail rates are 5.5-6% by year's end my outgoings would only be about $75 more per week than now once the debt is paid off, which I can handle easily.
Ideally the inflationary pay rises come in before the fixed term interest rates expire. I’m fixed until end of next year luckily.
I'm not worried at all.
If I am wrong, and the OCR is more than 2% by the year's end, a recession will inevitably follow, house prices will crash and unemployment soar - which will ultimately result in cuts to the OCR by mid next year.
If so, I will go on to floating from late November this year then wait for the rates to fall back in 2023 before fixing again.
Sounds like a good plan, but would RBNZ, OCR and inflation be willing to work with your plan? ;)
Logically, for me it does not compute that there won't be a recession (and then OCR cuts) if the OCR rises towards 2.5%. So much of our economy is based around property, it will fall away big time if the OCR gets to that level.
I could be wrong, maybe our economy will be fine if it raises to that level.
For recession to happen, the economy need a serious correction which is our housing market. In that case you will be looking at at least 30% price drop. 30% price drop only brings housing price to where it was at a year ago. So possibly 40%. But this won't happen over just couple of months as majority people still can afford to servicing their mortgage at 7% and no one want to sell at a loss.
If there is no serious correction, recession won't happen. Our economy will have a soft landing. And OCR will stay high for quite a while to support that.
Both scenarios wouldn't match your "OCR will come down next year" narrative.
HouseMouse, i've been calling for deflation all along. US 10-year yield will drop to 0% next year. Let that sink in for a min.
"The CCCFA will assist in taming inflation (taking some of the load off the OCR) even if that was not its intent."
What a great strategy that was
Thanks David Clark - Lol
It would be incredibly embarrassing for the RBNZ to not raise rates due to financial stability. They should definitely have enforced buffers to allow interest rates to head back up to at least 8%
Not raising the OCR is not an option Im afraid
100% chance of at least a 25 point increase in Feb.
yes even Orr wouldnt have the guts to not raise the OCR
Just a reminder - I have NOT said they won't raise rates.
I think they will, it's just I don't think they will go higher than 1.5-1.75% because:
- Higher retail rates will start kicking in over the next few months and have an impact, and those rates will go higher with further increases to the OCR over the next couple of months
- A credit crunch created by the CCCFA
- Lots of money being sucked out of the economy with omicron
- High prices together with the above will also suck demand out of the economy
So, I think it will be reducing inflation, worries about financial stability if the OCR is hiked too high and quickly, and worries about employment that all limit how much the OCR will be raised.
Anyway, I'll shut up now, I'm getting repetitive, I'm sure people understand my position now, even if you disagree with it.
i think the problem with the assumption that the CCCFA will significantly reduce the OCR rises is that the majority of inflation will be because of a falling $, increasing fuel costs - which effect pretty much everything, at least two more years supply chain issues. I think its impact on house prices might limit the rises but only to prevent it reaching 4's and 5's - which everyone thinks is impossible- but so was the GFC and Lehman Brothers!
A lot will depend on what the G3 do. If their rates rise, ours will have to follow to some extent otherwise our currency tanks. In the same way as ours fell post GFC - cuts were more to do with offshore economies being in trouble than our own, otherwise our currency would have appreciated too much.
Even if the OCR is not raised, RBNZ won't be able to hold the yield curve down unless they start buying bonds again. That's just part and parcel of being a small open economy with a floating exchange rate.
The pay freeze/miniscule offers to public sector workers are looking more and more insulting by the quarter...
You have to weigh it up against job security...
definitely.
My sympathies lie with the SME's. Public Sector (medical excluded) is the place to be at the moment.
Medical very much excluded. They are currently steeling themselves for a wave of increased workload while expecting ~20% of staff off sick at any given time, and figuring out who can redeploy to where to fill the gaps. Meanwhile the groups negotiating are getting ~1-2% offers, probably as a lump sum rather than an on-going pay increase, while inflation marches on.
Ardern told the media on June 7 that the government would not grant nurses the 17 percent pay rise, which NZNO had initially asked for in negotiations. She described the 1.38 percent offer as “reasonable and responsible” and said: “In this Covid environment, just as with the GFC [the global financial crisis that began in 2007–2008], we are in a position where we are financially constrained.”
...but not financially constrained to spend millions on focus groups groups, bike bridges that are cancelled, light rail that will never be built, unaudited subsidies, and plenty of other frivolous waste.
I am very sympathetic to the plight of healthcare workers, but at the same time many voted Labour blindly. You get the Government you deserve.
I didn't vote for Labour, but to be fair negotiating was just as difficult with the National government - we had to take industrial action every time just to get something that wasn't a real terms pay cut. Enormous waste of time and effort.
Likewise, didn't vote for Labour. Fair to note that the incoming National govt when Key got in had almost exactly the same number of focus groups too. Facebookers love to flog the idea, though.
Don’t know if it’s the perfect storm, but certainly there is a gathering storm. It has now boiled down to two vital factors. Firstly how much protection by critical numbers, is Mr Pfizer going to accord NZrs protection from Messrs Delta & Omicron. Second if the hospital system copes, and that means those with the actual responsibility on the frontline coping, then NZ copes. And the rider to identify the potential crisis is to ask what has NZ got, or done, to prevent the outcomes seen in say NSW/Victoria.
Dont worry about the health system -- we already have plans for asymptomatic staff -- even if they are + to come to work in settings whre all clients/patients are also covid +
the real concern will be all those truckers, food distribution and supermarket staff in 14 days isolation - or even 10 -- and the empty shelves -- That will be the crunch point - and the perfect storm when in a land that produces so much food -- there is none on teh shelves to eat --
Supply chain is already stretched to breaking point --- wont take much for it to snap
Jobs are just as secure over in Aussie, for healthcare workers eyeing up the growing chasm in pay rates.
General wage increases may need to move up from the normal 1.5%!
And thats the problem, you know they won't. Already so far behind they will never catch up. People without a house took a 20% pay cut last year. Inflation is still ripping it up and the RBNZ is far to slow to respond. The system is broken, this cannot end well.
More than a-fourth of our workforce is directly employed in hospitality, accommodation, retail, tourism, personal care etc. These are sectors where most SMEs don't have the market levers to push up wages by 5-6% and pass on those increased costs to their customers.
People will leave these sectors for other industries.
If poverty was that easy to escape then you'd probably have fewer people living in poverty.
There are unskilled jobs waiting to be filled, people just need to turn up. I understand some employers are waiving all previous police and character checks, and some are even ignoring drug and vaccine requirements or going under the table in order to avoid regulation. If you can't get the wages you feel you deserve there has never been a better time to talk to other employers about what they may be able to offer.
I feel this doesn't really address the actual point of my post.
Most of those workers have had big minimum wage pay rises. It was only $15.50 under national wasn’t it, so 30% in 4 years.
Which has just added to inflation.
Like I said at the time, forcing those on minimum wage to be paid more, simply causes inflation and they will be back to the same level they were before minimum wage was increased. Now we see it in action, I guarantee the governments response will be to do exactly the same thing...
You can't create productivity growth by raising the minimum wage, they should actually try growing productivity. But then again, if they had a clue how to do that, they might have started. Unfortunately they are completely lost on the matter as all that matters is ideology.
You can't create productivity growth by rewarding sitting on assets more than hard work either.
Best thing we could do is raise an LVT on unimproved value of land and dramatically lower company income tax. Reward those who contribute instead of speculators.
We don't have the politicians with the courage or conviction to do what's necessary, in either major party.
Expect big hikes in minimum wage, that will keep the Labour supporters happy when we head into election year.
Everybody is a loser when inflation kicks in. Asset owners and mortgage owners, as a result of increasing interest rates. Wage earners, as wages struggle to keep up with inflation. Business owners, who have difficulties in passing increased costs to consumers. Consumers, with increasing prices.
But let's not worry about it, as we have the RBNZ which might have no clue whatsoever about what they are doing, but which is incorporating Maori values in their policies, so everything is going to be honky dory.
Yep. It's going to spiral now. People are now talking about inflation. People are now looking at new jobs or at least ensuring their salary increases match inflation. Many have had rises less than inflation or none at all over the past 2 years. Some businesses, already capacity constrained, will give those increases and increase prices. And so it continues.
The raison d'être of the reserve bank is to prevent those expectations getting embedded.
They are obliged to smash the price increases with monetary policy.
The housing bubble is going to be collateral damage.
Well considering one of the other things they should take into account is "more sustainable house prices" RBNZ can't smash away, because
sustainable
/səˈsteɪnəb(ə)l/
adjective
-able to be maintained at a certain rate or level.
-able to be upheld or defended.
...meaning he has to maintain current house prices under the first definition, and arguable the second as well.
If one pays attention to the press releases that have emanated from their direction over the past nine months, one would find that they have repeatedly emphasised that "house prices are far above sustainable levels" and "market participants should exercise caution".
These statements were made for a reason.
Yes, to sound like they care. My point is that the definition of sustainable could be interpreted to mean keep them about the same "sustained moderation".
Sustainable is intepreted to mean "in-line with economic fundamentals".
It's going to be a heck of a suprise to some when house prices begin returning to reality.
This is true. I don't believe my own rhetoric. But if the RB wanted to it could have done something about house prices a wee while back. It didn't, which means they aren't using hte economic fundamentals the way you do.
Their mandate was changed less than nine months ago.
They're an odd bunch.
On the way up it was constantly just "inflation is below the range, computer says lower the OCR" and soaring house prices were irrelevant to financial stability - despite their increasing financial instability.
Now...suddenly "inflation is above the range, computer says raise the OCR...but um...house prices are relevant".
The taking of wealth from wages and savings and handing it out to property owners is why so many have begun to lose faith in such institutions and their actions.
You need to clearly define "Sustainable" with actual number. Its pretty obvious to anyone that 40% house price increases are not sustainable from one year to the next but a drop to single figures suddenly becomes sustainable. Words mean nothing really and your never going to get numbers out of anyone because that's a set target you can just get dragged over the coals for later on.
You might want to remind the Minister of Finance and the chair of RBNZ about that. What's truly important to them, it appears, is the mahi Orr has done to acknowledge Tane Mahuta, design inclusive logos, overpay for sculptures, and restructure out competent staff who may not have agreed with the agenda. So, notwithstanding your memo, Robertson will reappoint Orr and the Chair will give all RBNZ staff a gold star sticker for a job well done
Should we be shocked to find making it rain money with near zero rates would have negative consequences? There's no such thing as a free lunch...
Wrong. The wealthy do extremely well. Why do you think inflation is being tolerated?
Yep but those with a 800k to a mill mortgage are going to be more of a loser now...Freight trains take a lot of stopping and this one has got a lot of speed up.
I disagree. For mortgage holders inflation is great as long as your pay keeps up with inflation and you can afford the repayments. My bigish chunk of mortgage debt will look like peanuts after 5 years of 6% inflation.
Think again.
Only if inflation includes your home. Sorry to say, assets have had their turn. Inflation will now occur on those essential day to day items.
Your property will drop.
rastus , ya nailed it mate , prop may not go down much but l think its done on the upside , if they dont raise rates , $4 gas will look cheap
as your pay keeps up with inflation
hahahaha
The banks will be OK though.
Nice picture. My prediction of $3 a liter 98 petrol didn't quite make it for Christmas, got pretty close may take another few months.
Think it's $3 in some places!
MSM have confirmed in Waiheke. Anecdotally a few other areas are over as well.
Yup over $3 for 98 at lots of places in Auckland now.
You can see it on Gaspy. https://gaspy.nz/
Yeah it hit $3.00 a few days back. There was a Reddit thread about it. Along with a new thread every day saying “why is X so expensive, we can’t live like this”.
Waiheke Island, today:
Unleaded 91 - 313.9c
Premium 95 - 322.9c
Diesel - 230.9c
Think if I lived there it would be time for a Hybrid, or electric.
Good for those that can afford an EV of Hybrid. Too bad if you are poor.
On a 92sqkm island, I imagine even the crappiest Leaf would have sufficient range to cater to one's daily travels.
Fuel may be expensive per litre but how much can you possibly use per week in Waiheke! Expensive fuel will be great, people may actually use less, wreck the environment less, work closer to home, walk to the dairy, bike medium distances, etc.
who am I kidding, they will just find some subsidies for the poor motorists.
Only rich drive cars on that island. So they do not care if it's $3 or $10. They sequeeze it from the blood of poor anyway.
Carlos the way the $ is going ...$4 by xmas....then its game over
Well you all signed up to net zero so suck it up and stop complaining.
Hate to say it Pete but a few people are hoping it goes to $6 a liter because at that price it will get plebs out of cars and onto busses so they can drive around without the traffic. When it gets to $10 a liter we can raise the open road speed limit to 160km/hr as I need to stretch the legs on my Lambo.
Double that and you might be close to the real number. We are stufffed.
Very true.
Not looking forward to when this hits mortgage rates. Think I read about two-thirds of mortgages are up for renewal this year, that is going to be painful!
Ours is due for renewal next year, so I wonder if rates will have peaked by then or if it will just be the start!
The required steep and sustained increase to mortgage rates is going to be ultimately catastrophic to the housing market. And the RBNZ can't do anything about it - they created the problem and we are all left to pick up the pieces.
Thank you Mr Orr, brilliant job.
Despite this, Ashley Church thinks house prices in Auckland will rise in 2022.
Possible if borders reopen, it's the preferred destination for immigrants.
Don't think it probable though unless inflation is allowed to run wild.
That simulation they made of the brain of a fruit fly has more intelligence than Ashley Church.
Just shows you that the government could have made a block of cheese rich if it was able to buy a house 20 years ago.
I still think houses will rise in 2022. If you look at the really big picture of continued inflation, its a given. I'm still going for single digit gains.
it depends on what people are re fixing from and were they smart enough to keep their payments the same or increase them when they came off higher interest rates and fixed in at a lower rate. I would like to think most people did this so they get to pay it off a little bit quicker but then when it comes to re fixing and the rates have increased but the blow is not that significant
Once hundreds of 1000s of kiwis are effectively locked down again under omicron and isolation etc, then the OCR and mortgage rates will have to dropped again.
This is not correct. A quick perusal of the information available on RBNZ website would inform that it takes 9-18 months for changes in monetary policy to be transmitted to the broader economy.
The Omicron wave is going to come and go by April. Perhaps even sooner now that the BA.2 variant has arrived.
“Come & go by April”?!
It hasn’t even really fully arrived yet.
Can you imagine this Govt & the media & the fear-influenced public once we get 1000s of cases daily etc? They’ll be burying us in survivalist bunkers and cutting all travel at that stage. With few able to work.
Just upgraded to a bigger house, fixed our mortgage for 5 years at 4.95%. Should buy us some time.
The only ref by jacinda to inflation will be to blame it on covid.
Such a convenient virus.
There will be a 3 phase plan to tackle it.
Phase 1: Deflect
Phase 2: Decamp
Phase 3: De wedding
De couple?
De stroy
de end
De Fend
De Ny
Covid seems to be a convenient excuse not to actually do anything in other sectors of the economy, all we do is grandstand and focus everything on Covid. Its been a total disaster for NZ. Started off okay but then they had a covid OCD, nothing else matters as long as we have nobody dying directly of Covid.
If you say "we are the envy of the world" 100 times, you actually start to believe it.
Need to wheel out "good problem to have" and "sign of our success" along with "I wouldn't call it a housing crisis" to bolster the arsenal. Worked in the past.
Ironically it's the prevention that has caused this, we haven't even had the virus yet.
If I was Jacinda, I'd step down at the end of 2022, by which time she'll have completed 5 years as PM. That's enough for anyone.
TTP
tothepoint....she will...fatboy is next cab off the rank
High heels on a high horse can make for a tricky dismount.
Get off the sinking ship.
The economy will be a mess by the end of 2022. The next election is National's unless they are a total basketcase.
Sorry but they are a total basket case.
Bridges for finance.... good luck with that.
So those emergency cuts... you know that whole percentage point. Will we be getting that back now? or is it still transitory...?
and even if it does rise, what's the bet deposit rates stay stragely low.
The whole system is an orchestrated scam.
100% agree. We are going to have a large percentage of the population really, really pissed off by mid 2022.
That will be the banks "taking us for a ride", as they say.
Consumer inflation hit a three-decade high in the December quarter, due to factors both within and outside of New Zealand’s control.
The Consumer Price Index (CPI) rose 5.9% from the December 2020 to the December 2021 quarter, and 1.4% from the September 2021 to the December 2021 quarter, according to Statistics New Zealand.
Government bond curves remain flat on the way to inversion at yield levels considerably below inflation - financial repression reigns over us.
by Audaxes | 5th Sep 20, 2:22pm
Robertson has maintained the Reserve Bank's monetary policy is working well.
Assistant Governor Hawkesby told Bloomberg that the RBNZ was thinking the same way as the Fed and would likely embrace a period of inflation above 2%. - sourceIt must be time to discuss:
Meanwhile Chief Powell blatantly fails to reveal that the biggest beneficiary of his reformed inflation target will be big government, for whom his institution is now a mammoth tax collector, with emphasis at first on monetary repression tax, and later on inflation tax.Link
This is the phenomenon we study. Financial repression (FR) is defined in Box 1, while Table 1 describes a selection of policies that defined the FR era in the United States but are representative for other countries, advanced and emerging alike. There is considerable cross country variation in the extent of financial repression and the magnitude of the financial repression tax. When controlled nominal interest rates coupled with inflation produce negative real interest rates, it liquidates (reduces) the stock of outstanding debt; we refer to this as the liquidation effect. However, even in years when real interest rates are positive, to the extent that these are kept lower than they otherwise would be via interest rate ceilings, large scale official intervention, or other regulations and policies, there is a saving in interest expense to the government. These savings are sometimes referred to as the financial repression tax. Link
So we printed/spent billions at a time when we never actually had a pandemic in NZ so everyone partied up on cheap $$$ and now that we may well actually have a pandemic in the very near future with Omicron we have nothing left except for massive debt, record inflation, a cooked housing market, a larger than ever gap between the haves and have nots, a hugely under resourced and faltering health system and debilitating cost of living??? Well done NZ 👏
Well done NZ 👏
Well done RBNZ 👏
“Well done RBNZ 👏 “
I stand corrected 😂
In fairness to the RBNZ, some of those areas are fiscal responsibilities and the Government should equally share the blame.
The government is also to blame for changing the legislation that governs the RBNZ.
Smudge , the damage has been done & the full force of it wont be felt for months.....why arnt more kiwis protesting on the streets....??
Good question 👍
erm because the streets are clogged with ford rangers?
Clogged with Prius Uber drivers, driven by immigrants in Auckland
All a bit lost since there's no international visitors
It was the path of least regrets. Now, is the punch bowl still going around?
It looks like the chickens of having an economically illiterate finance minster are coming home to roost.
Correct, he pumped the hell out of the economy with cheap credit and threw Billions of dollars around like confetti when we didn't even have a Pandemic in NZ.
Yes, not a good combination.
- an economically illiterate finance minster
- an economically illiterate RBNZ Governor
But to be fair, even a rate increase now is likely to just add to inflation. It is a vicious feedback loop as the only way companies can cover increasing debt costs is to bump prices.
Robertson gave RBNZ many nudges in the last 12 months but Orr would not move the OCR. I blame Orr.
I don't think Orr is financially illiterate. His flaw, it appears, is that he's unable to consider alternative views and criticism. And that's dangerous. Robertson, on the other hand, has no clue full stop.
Agreed.
Bang on Essen.
No, he's economically literate.
Which means he's pretty much stuck with saying the Emperor still has clothes.
Transport costs up 15% in a year. Quick put up interest rates, that'll sort it.
Housing costs up over 7% (mainly rent) and landlords planning rent increases of 6% this year on average. Quick put up interest rates and increase landlords' borrowing costs. That'll sort it.
It sounds like somebody doesn't understand how interest rates work.
It does indeed!
No BL, it's the rest of us who have it wrong. This guy and Erdogan know the real story.
Don't draw false equivalence between my position and Erdogan's (which is about tackling a dollarised economy, artificial currency value, and capital flows but never mind).
If you can explain to me how increasing interest rates will reduce housing rental costs and persuade the Saudis to reduce the price of oil I am all ears.
So you don't think that raising interest rates preserves the relative strength of a currency, thus making internationally traded goods more affordable?
The spread between NZ and US interest rates (in particular) clearly influences exchange rates. My argument is that changes in interest rates kick off a chain reaction through a complex financial and economic system. Some of the changes triggered will be deflationary, sure, but others will be inflationary. The idea therefore that increasing rates will, de facto, address any given bout of inflation is simply ridiculous. Look at Hungary at the moment for example - pumping up interest rates and looking dumb and confused when inflation refuses to be tamed. Contrast that with the the US where they are tackling inflation by releasing oil reserves and investing in increasing capacity at the ports.
Yes. But I think you mean ‘ipso facto’ 😉
Hearing people clamour for interest rate hikes to tackle the consequences of profit gauging in energy/ fuel markets, massive impediments in absurdly long supply chains, and frankly, a pandemic, is completely misdiagnosing and probably compounding the problem. We might as well prescribe OCR hikes as a cure for COVID, alongside ivermectin. Better yet, why not ivermectin as a cure for inflation?
High interest rates encourage more property owners to rent out their property, decreasing rental costs.
Higher interest rates increase the cost of running a rental property. This cost is passed onto tenants creating upwards pressure on inflation.
If they could increase rents whenever they wanted yields would never have gotten as low as they have.
The RBNZ (and yourself from the sounds of it) have been applying fairly typical monetary theory to a much less than typical set of circumstances.
Potentially all signs are pointing to the same place, the cost of covid can't be put on HP or deferred.
The RBNZ (and yourself from the sounds of it) have been applying fairly typical monetary theory to a much less than typical set of circumstances.
Potentially all signs are pointing to the same place, the cost of covid can't be put on HP or deferred.
The problem is the interest rate won't resolve a whole bunch of inflationary pressures. I can see Omicron blowing costs out in so many industries.
Forget omicron - it's resource scarcity is the overarching issue.
All else is noise and obfuscation.
Global wars ahead.
That's certainly another issue, but for the short term we are paying the price for making whole economies reliant on just in time shipping and narrow timeframes.
... and selling houses to each other instead of doing anything productive.
Next door I watched a guy for 8 hours straight, scraping clay off a drill-bit for a boring machine. Drove off in a late model Mercedes. Clearly construction is the way to go...
Did you get your Merc back?
Plague - then Famine (the old world name for inflation).
Resources wouldn’t be so scarce if we had invested in productive industries.....but we went for investment in house trading.
Eh? Can you explain that?
This is why it's foolish for folk to hold "business experience" up as the gold standard for any leadership in NZ. We need more strategic perspectives in our leadership than more short-term economic thinking such as has plagued us over the last decade-plus. The issues we are facing such as food security, climate change, resource scarcity, and geopolitical security aren't equipped by short-term economic perspectives.
Monetary policy is a blunt tool.
However, across the entire economy, a raise in rates absolutely will put downwards pressure on inflation by depressing demand.
Won't the current retail rates (which will start to deliver impact over the next few months as people re-mortgage), together with CCCFA and omicron, and very high and rising prices (usually somewhat of a cure for even higher prices) whack down demand and hot money in the economy?
I think they will.
Spotted in the comments section of the Herald version of this
the cost of money is still way less than the inflation rate, meaning we have negative real interest rates here. For commercial property borrowers at say 4.5% that is an effective rate of 3.24% after tax, meaning just over half the inflation rate. And the same for residential investors, although this financial year they can only deduct 75% of the loan interest, meaning their effective after-tax interest rate on their loan is 2.8% at a 33% marginal tax rate rather than the 3.7 % loan rate. That's good news for investors.
Increasing income tax and GST will do the same thing. Anything that leaves less money in your pocket, will dampen demand.
Hard to believe the vege prices have only risen 14%. Celery at $7.50 a bunch and iceberg lettuces $5.50 -$6 for example. Both in-season
The number wizards at stats NZ probably work long hours to ensure fair hedonic adjustments on fruit and vege
tomatoes 6.49 in full season, i remember it to be as low as $1 few years back.
Farmers have business loans too on their farms (agricultural land), cattle and machinery and need to make a profit to stay afloat. With so much financial engineering forced into these sectors and borrowings by farmers over the years and increases in cost of capital works and input costs, it's led to a situation where the consumer has to pay. Add in the urea shortage and fact that NZ is in the furthest place one can be in the world, everything costs more to import to keep the farms going. What do farmers do in a drought, flood or bad crop year, they borrow money and take out another loan to keep the going for just that bit longer. Just another debt trap organised by the banking cartel to squeeze out a profit.
I’m sure the commerce commission is working hard to ensure we have the most fair & competitive markets....lol
Price increase from our food supplier ...
From 1st February, 2022 prices will move up across a range of products / price increases range from 9-14%.
It is as expected.. Yes.. But what are we doing about it? Waiting another month to take any action. When it was time to reduce the OCR because rich were going to be impeached, RBNZ did it as an exception very quickly. Now since poor are being affected by inflation, there is no action. This is not a team of 5 million. Only the team of the rich and powerful. Rest all slaves..
Seems like it's fudged, at least between 0.1% to 0.3%.
Last time it was just under 5 which is 4.9 and this time it is just under 6 which is 5.9. Don't know how long this cover-up will go. In reality, it is really hurting now whether it is daily commodities or housing.
Reload the data until the lower digit come up lol
So, wages rising at 4%?
Raise rates to choke off inflation, will induce recession.
Don't raise rates to reduce inflation, more inflation above wages, causing drop in consumer spending: recession.
Construction costs up 16%
Development in Orewa on Centreway rd canned for this reason this week.
So, rising costs, more supply, less demand, higher borrowing costs, no immigration.
And prices won't fall eh?
15-20% in June-Dec 22
If you wanted to create inflation, closing the border and net zero climate policies are two of the best ways you could think off.
Central Banks will talk tough but ultimately will not tighten that much.
Indeed. The housing bubble was always going to result in an economic train-wreck.
It remains to be seen which side of the tracks they decide to make suffer the most carnage.
How many houses do central bankers, Treasury leadership, and politicians own...?
That may provide a clue as to which side of the train tracks will be made to suffer the most.
I'm not sure RBNZ have been best served by this policy of only raising in 25bps increments. Inflation is getting a long way ahead of them now and other major banks raising across the OECD will export more inflation making inflation control more difficult.
Not only are we not likely to see a soft landing but we are still gaining altitude. Imagine what it will look like after the next quarter when Omicron inhibits productivity. We need RBNZ action and not just tough talk.
Perhaps Adrian Orr will use indigenous techniques to fashion a branch of Tane Mahuta into a telescope to "look through" the inflation.
They will have to watch the NZ/USD. Under 70 is killing us at the pumps, and driving inflation. Orr is going to have to truck along with the OCR rises, especially if the US are raising at the same time.
Justa , great comment . some people dont realize if interest rates dont go up....kiwi $ will be toast....$4 petrol will look cheap & do you wont a head of lettuce for $9......some much pain coming down this road..
I wonder what inflation really is. This is the most manipulated of stats and is manipulated to understate inflation and beget low interest rates to support the housing ponzi. Rise up NZ the capital led class is stealing your money.
I wonder what the best strategy is to cope with ongoing inflation. Owning your own house seems wise. Keeping your job is probably a good idea too. Keep all the property you do have. Keep some cash reserves or at least liquid assets.
I don't know. Do readers have suggestions?
Buy things now that you've put off buying because the prices will just go up and your cash will be worth less. Cash reserves are fin and wise, but holding onto cash for the sake of it seems pointless.
Good Morning from Germany, where housing boom accelerated as Germans buying real estate fearing rising inflation, rents & interest rates. Europace House Price Index jumped 2.1% in Dec. Gained a whopping 15.6% in 2021. Index has risen in tandem w/ECB Balance Sheet to ever new ATHs Link
Whooping 15.6%.
Bloody amateurs.
Get in debt as much as you can borrow, inflation will eat away at the nominal amount while increasing the value of the underlying asset, assuming it isn't a depriciable asset.
A million dollar loan with 5% inflation per year is knocked back by $50k for the first year, or $1000 a week in real terms. Not bad!
Only if your salary is adjusted 5%.
Yeah but interest rates may rise to 8% to get inflation back to the 0-2% band. And liquidity may dry up so no more interest only loans. So 3.3% capital repayment required too.
so 11% a year on a million is $110,000
but you have to earn $150,000 and pay your tax to get your $110,000 net to pay your mortgage
good luck finding a tenant or an average kiwi household to do that!
In reality it never turns out that way. Well maybe in some corrupt countries... I honestly don't think we are one of them.
Just think of whoever lent you that money, what's the incentive if once it's paid off it's worth a tiny fraction of what it once was? They'd be losing big time and soon be out of business.
I suggest you get rid of as much debt as you can.
Best make friends with a banker.
Hedge with bitcoin and gold.
"Economists are increasingly saying inflation is now embedded and not "transitory". "
Jenee, does it means that many commentators on this website are smarter than Economists as they could read the data and see what was coming.
Fail to understand, how could so many experts and media fall for false narrative that was been propaganded by Mr Orr and his team supported by lobbyist like ......
HOW COULD THEY FORGET : In emergency doctors are suppose to treat by giving antibiotics but if doctor gives overdose of medicine, should he not to be blamed. Should know that life support system is only for emergencies and once the patient stabilize (Happened early last year) should be removed from ventilator or will do more harm than good.
Going future likes of Mr Orr will do more harm in trying to clean the mess created by them.
Wait and Watch
Economics sleight of hand and the ever-increasing tortuous manipulations of the financial system by itself simply cannot solve all the financial problems we are facing. Those who have only studied economics and finance without studying history might have trouble understanding this, so here is food for thought:
Regarding inflation we could be looking at the Weimar Republic in Germany during the 1920s and 1930s. Hitler's solution was war,WW2.
The USA's huge unemployment during the Great Depression from 1929. Roosevelt's solution was war, WW2. The war turned USA into the most powerful country in the world.
During WW2 Russia was lifted out of a rural peasant economy to a more advanced industrial economy.
War seems to be the only proven solution for lifting countries out of any overwhelming financial disaster.
War is a permanent condition of mankind. Even chimpanzees, our first cousins, go to war.
So, what wars are on the horizon? Currently, there are two obvious possibilities:
Firstly, there is China attacking Taiwan which could lead to USA actively defending Taiwan. If USA turned to other western countries for help it is hard to see NZ declining.
Secondly, there is the possibility of Russia invading Ukraine; this could easily escalate if the USA intervenes to actively assist Western Europe in defending Ukraine. Western allies from all corners of the world would be asked to help defend democracy.
I would suggest we immediately institute compulsory military training for all those under say 40 years old. This age ceiling could be easily raised to 65 years old if things didn't go well in defending Taiwan and China decided to invade NZ to ensure security of food supply. The Chinese population of NZ would be interned in concentration camps much like those Japanese living in USA in WW2 were. This would have the beneficial effect of freeing up many residential properties. However, the demand for young men (and perhaps young women) for the military would reduce demand for these properties. Of course, many of those conscripted would not be returning. The net result being that there would be no demand for houses and their values would drop in the order of say 90%.
struth ...?!
Pretty extreme way of sorting out our housing problem I think. Maybe just build more houses?
War could be used as a tool to divert attention and to create unity among its population by unleashing nationalism.
China is Struggling, Russia is Struggling and not to forget USA, so what better way to distract from the current mess created to retain power.
Most politicians ruling the country will welcome distraction from economy disaster that is waiting to happen and. Will get another excuse to blame after pandemic.
Good thinking, so who shall we declare war on, perhaps the United States, they are very beneficent when they win.
Remember the Peter Sellars movie,”The mouse that roared?
I'm inclined to agree that the next 20 years has a scenario that is very different from the prior 20.
We're, collectively, going to have to deal with tightening monetary policy, impacting zombie companies and newer start ups with poor unit economics who've been able to "cap raise" them selves into cash positions.
From the perspective of Geo politics, populations have become increasingly divided based on social media "click bait" anger generating algorithms.
It's time now that the piper is paid. I can only hope and pray that it doesn't come to war, hot or cold.
You must have really bad dreams at night and I thought I was having the odd nightmare.
The great kiwi Peter Arnett ...was told during the Vietnam war....we had to destroy the village in order to save it....Jacinda & her team have now managed to do the same......well done...not
Remove global mobility restrictions, reopen all businesses, remove all barriers for supply chain...... that will fix your global inflation problem.
Inflation is overly inflated by the actions of governments reacting to COVID. Remove everything they had put in place and inflation figures will instantly drop.
Increasing interest rates is only a tiny portion of that problem. Unless you dramatically increase it by 10-15%, you will never get this 'fake' inflation figure down.
Really??..... Chinese producer price index is running at greater than 10% and last time I looked in a mitre 10 that’s where most products come from these days.
Being a net importer, we shouldn't be expecting too much of a wage rise in lieu of inflation- the problem is in the expectations and not in the events themselves.
Being the largest consumer in the world and having the de facto currency, inflation can be transitory if the Feds wants to make it transitory- that's what people don't get it when the Feds say it is transitory.
If you follow the Fx markets for a while, you will notice that decisions made by RBNZ can only go so far in moving the market but only in the context of what the Americans do.
Proof in point, RBNZ raised interest rates and most punters expect further rises, did it do anything spectacular to the NZD?
No, the inverse actually happened. What other proofs do we need that interest rates is an ineffective tool in dealing with inflation for NZ's case?
The Feds had already done some heavy lifting to moderate inflation last few weeks by shaping the market expectations and all NZ can do like everyone else is to let it fade.
Trying to raise interest rates at a time of a malaise economy is asking for a deep recession and the unemployment rates is misleading because of governmental and legislative support leading to workers behavioural changes. Hence, relying on employment rates as one of the variables in the health of the economy is grossly misleading and had an effect of inflating other variables resulting in a wrong conclusion.
RBNZ will be wise to hold back while the Beehive winds down fiscal support to get a more accurate picture of the economy before deciding the next action.
They are not going to hold back.
There is little time left to offload your slums.
Be quick!
The Fed has done some heavy lifting?
Enlighten us all.
Karma is a bitch.......Mr Err.
First you Scr$#@ and now you get Scr$#@. End Result = Average citizen is Sc$@% in both scenario.
It's not going away until the bubbles pop. The excess demand comes from excess 'wealth' (the bezzle) created in this decade-long global mega-bubble, absent any equivalent increase in actual productive capacity. Whether that's shares in unprofitable tech companies, crypto, or (in our case) housing excess - all that paper money is grasping for its share of the real economy. Inevitably, that real economy (labour and commodities and finished goods) starts to cost more as the holders of those financial assets seek to convert them into real-world goods.
So this will continue until the bubbles pop, reducing the 'wealth effect' and thus demand. Alternatively central banks and governments continue unnatural efforts to keep the bubbles afloat and let inflation run out of hand until there is serious, violent social dislocation because ordinary people can't eat or travel.
Those are the two options.
In the NZ context, I'm betting that the RBNZ will continue tightening -- will actually go beyond what is currently projected -- as their efforts fail to have the expected effect and the NZ dollar (and more importantly, actual prices of vital inputs like petrol) continues to weaken. We're going to look back enviously at $3 petrol. And we'll laugh at the idea that lifting the OCR by 25bp was considered a dangerously hawkish move.
There are only 3 outcomes
1) OCR rises above inflation and property shoulders most of the fall out as the RBNZ follows its remit on inflation above its other mandates. Economically the most sound outcome but plenty of pain.
2) OCR stays much lower that inflation and inflation is allowed to stay high, RBNZ citing stability and Omicron as reasons for "measured approach". This is effectively a sit back and do nothing.
3) OCR approaches inflation but not high enough to actually reign it in aggressively. Housing still takes a large hit and inflation stays higher than targets keeping the "economic thief in our pockets". Fallout is across the board but the Government can claim they "did everything they could" - it's a tricky situation.
Too close to call but my guess is 3 most likely, closely followed by 2 and 1 a long way back.
I don't think number 2 really works as a 'sit back and do nothing'; with CPI at current levels, ignoring it is a deliberate choice, and one that will continue to have political ramifications. Inflation does not go unnoticed by the average person, particularly if they're already paying a huge wodge of their income on extraordinary housing expenses.
Real interest rates are still negative, even with a 1% OCR rise, which means housing is still an attractive proposition for some.
Ha of course it's embedded.
I don't recall ever seeing deflation in CPI. Anyone else?
What we have now is the result of 2 decades of central banks encouraging the aggregate demand narrative for cheap credit. For whose benefit?
Yes supply is an issue due to Covid disruptions but the real issue is demand.
Does anyone know what we're actually demanding anymore, or have we become so programmed/conditioned we just do what we've always done and follow the herd?
Much like I said a few months ago, they should have raised in November by 1%. Cos right now, inflation is running away and .25% increases will see it fly. Expect the next quarter to be ~7% inflation if they don't emergency raise rates by probably 1.5% now. Even then the OCR would only be 2.25% still pretty low by historical standards.
I want helicopter money. I'll spend it, I promise (on a ute)
Time for Adrian Orr to resign, it's been nothing but incompetence from him.
Grant Robertson hasn't done that much better.
What would you have done?
The problem is that kiwis have taken on too much debt for housing and most don’t don’t have two bob to rub together.... that’s the real kicker with rising prices and interest costs to boot
Aids said not long ago that rising house prices were a "first class problem" and that central banks should just "mop up the mess" afterwards.
It's cleanup time on aisle 5.
Orr and Bascand knew that kiwis are inherently greedy and they enabled the greed by removing LVR's and dropping interest rates to practically zero, knowing exactly what would happen. They caused this mess, they are to blame.
Banks should have known that NZ house prices could never rise 30% + in just a year, and based their lending on a 5% rise. They should ahve brought in far more restrictions on lending.
My feeling is that the Rate of cpi inflation will ebb and flow, as it has done in past inflationary period s ( Its a stretch of the truth to use the word transitory.) High prices are here to stay.
I think nz is kinda on the edge of heading into a recession. Omicron , without the level of govt fiscal support that we had with the lockdowns will be the kick in the arse that sends us over an edge.
Construction has always been a boom/bust sector.
$Nz will continue to weaken. Without the support of high levels of immigration and service sector exports, our chronic current acct deficits have come home to roost.
Plenty of background inflationary clouds.
Politically , the will is towards deficit fiscal spending and central bank money printing.
A dip into recession.... And that will be their playbook.
Just my view... At this moment
Omicron is going to show the NZ economy for what it is.... A complete scam. There is no money left. We have been living off a credit card.
Orr and Robbo sacrificed the economy just to make the rich richer. In doing this they have made all of us much poorer. A criminal investigation is required.
6% is not a high inflation rate.
No but if interest rates go up and it has little effect on the inflation rate, then there are going to be a lot of sheeples in trouble. Wait until the councils latest round of rates come out as well.
It is funny how so many so called 'experts' said it was transitory, yet many of knew this was not the case, and these rising costs were led by the massive asset inflation, caused by the record low interest rates and money printing. All fueled by greed.
Has National had its gang HQ repossessed , yep inflation is hitting the 6% mark around the world as the private sector is covering the costs of Covid .
Can the government socialise the costs of inflation while having afforded to keep us all safe for almost 2 years now , while increasing public sector wages , min wage and benefits across the board plus subsidies for Covid affected private sector .
Fortunate to be in NZ and not one of the other basket case countries USA , Brazil ,UK .
Yep the people that think NZ is a terrible place to live have no idea. The standard of living around the world is crashing and this country is paradise in comparison. Once the floodgates reopen we are going to be overrun by people wanting to come here.
The exodus begins
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