Inflation will go much higher this year and will stay above the Reserve Bank's target band, Treasury is predicting, after latest scenarios presented to the Finance Minister paint a worse picture than that of just two-weeks-ago.
Nicola Willis briefed journalists in mid-March of Treasury forecasts of 3.7% in a “worse-case scenario” based on a prolonged conflict lasting the rest of the year, with oil prices continuing to rise. That figure was met with skepticism from the likes of Westpac economist Kelly Eckhold who said 3.7% was likely closer to baseline.
While Willis would not present any Treasury inflation forecasts during Monday’s post-Cabinet press conference, she said Treasury’s latest scenarios, “in which they take into account a longer conflict with deeper disruption to supply chains, they have inflation peaking higher than I've previously presented to you”.
“But they are continuing to refine their scenarios and their planning.”
Willis said Treasury caveated their advice on the length of the conflict, the timing of the Strait of Hormuz reopening and the level of disruption to supply chains.
“They haven't landed on a final scenario, nor even a central scenario… There's so much changing."
“What I can be open with you about is that they think inflation will go much higher this year, and it will stay out of our target band.”
Asked on RNZ on Monday morning about inflation, Eckhold said; the “base case now is just over 4% and if you want to talk about worst cases, then we probably should be adding a couple of percentage points on.”
Labour leader Chris Hipkins said giving New Zealanders the range of inflation forecasts that Treasury were advising was a “perfectly reasonable thing” for the Finance Minister to do.
“I'm sure people will accept that it's going to move, but at least giving us an idea of… the best case scenario and the worst case scenario, what sorts of things could we be looking at.”
2 Comments
If petrol prices stay at current levels for the April to June period, CPI will go well above 5%. Its just maths. The direct formulaic hit will be two additional percentage points (fuels and air / road passenger services). Now add on the secondary effects as other costs / prices increase.
I spat out my drink when Treasury talked about 3.7% as a worse case. Completely unserious analysis.
It's been abundantly clear to many of us over the last couple of decades since the Iraq war that we should move toward electrification as fast as possible. Even Elon Musk saw such a day coming as we have now, which is one of the reasons he started Tesla. I find it increasingly hilarious that governments of all stripes are waking up to the real issues of energy security and fiddling at the edges, with this current lot hell bent on full on denial of real energy security even before this conflict. Even the last lot were just fiddling at the edges with the clean car discount policy and were too late to the party with their subsidised solar policy which should have happened a decade ago.
We keep electing idiots that don't see the real problem because most of us are in denial of where the energy comes from that we need to continue our civilisation. I guess we have elected the governments we deserve, now its time to lie in the bed we made for ourselves. Start growing veggies people, its going to be an expensive winter!
If ground troops get involved in Iran, its likely to be a meat grinder for a few years with no real winner. With inflation spiking everywhere far worse than COVID. That's unless Trump gets impeached and thrown out after this years mid terms, but any incoming President will be stuck in a quagmire of his making. The hilarious part is that Trumps team were trying to negotiate the same deal with Iran they had that Trump pulled out of in 2016, Israel hated that idea so just started attacking Iran without the US's permission. So the US had to go along with them. Essentially the US ME policy is now dictated by Israel who wants to revisit atrocities the Jews suffered on everyone around them, destabilising everyone so they can become the dominant power.
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