David Hargreaves says still 'sticky' domestic inflation may convince the Reserve Bank to sit tight on the Official Cash Rate at least for now

Look at the services PPI in the states. This isn't over.

Whats so great about lower interest rates.   The current rates are about long term normal.   Lower rates encourage borrowing and discourage investment. (edit:  aka saving)

We would be better as an economy if we worked from the power of ownership rather than crippled by debt.

If we cut sooner rather than later, how likely is it that it will lead to non-tradeable inflation taking off again? We are still well above the neutral OCR. I can't see that dropping the OCR by 25bps is going to cause rent, rates, insurance or tobacco price increases to get any worse!

The longer the RBNZ sits on the fence the deeper the damage to our economy and the flight to Aussie and other countries will only continue.  We are already at record levels of our young and talented leaving.  Pity the poor families who bought on Orrs recommendation of "borrow ,borrow, borrow" who are now trapped in their negative equity homes paying ever increasing insurance, rates and electricity.

Looking at the graph, non-tradeable inflation is still high and even with an optimistic return trajectory it won't return to within range until 2nd QTR 2025.

At the rate that workers are leaving the country, unemployment may well surprise on the downside.  

I disagree, the much lower inflation figure than the RBNZ expected is very good news for the fight against inflation and the domestic inflation is held up by rates, power, insurance, all items which are not responding to a higher OCR.  If the RBNZ has any brains, it will realise how much pain it is inflicting on the economy, how many people are about to be made redundant, how many more businesses will close down, and drop the OCR by 0.25% in August.

The last 3 quarterly reads have been between 0.4% and 0.6%, this is exactly where RBNZ want the be with inflation and price stability.

...why on earth would they adjust policy when they are already in the sweet spot?

regardless, I'll keep an eye on mortgage rates from the big banks now. 

Pretty sure the goal here at RBNZ is to hold the OCR long enough to absolutely hammer in some solid unemployment numbers. Double digits should get the ball rolling, can’t pay those insurance premiums/rates when you physically have no money to pay with.

At the end of the day, the RBNZ have a CPI target, not a domestic inflation target. If the next quarter's inflation is similar to this one, they will actually fall below that 2% target. Meanwhile they have the inflation brakes on full noise and are screwing over the economy. 

At the end of the day, the puppets will follow the Fed. All speculation until then.

The RBNZ has a sole mandate of CPI. Not non tradables CPI. They lost their dual mandate and have consequently caused a high level of pain in the jobs market so why if they have been given an explicit mandate of CPI should they not focus on it? Every lower quarterly print effectively tightens policy in theory as the real rate rises ( currently at 2.2%). 0.5 0.6 and 0.4 extrapolated forward would see the middle of the band next quarter and real rates an extraordinary 3.5%. Let’s just get rid of the unhealthy non tradable debate. 

18% council rates increase, 20% insurance hikes, domestic inflation not exactly discretionary spend. 

How much do people expect the OCR and interest rates to drop? Surely, they don't expect a return to the ultra low interest rate environment? Like an interest rate of 5% sounds about right. I'm in two minds about cuts, it would benefit me directly as I have a mortgage, but I despair that the property market might blast off again. Cheap debt has never been good for us. 

"the unemployment rate will have risen from 4.3% as of March to 4.6%". So still some way to go until it's any concern in a general sense.

In the real world, an unemployment rate of 5% or lower is often considered full employment. This level of unemployment prevents inflation and lets workers move between jobs, but is low enough that those wanting full-time work should be able to find some kind of full-time job.

The RBNZ's DTI ratios are only 2 weeks old. But they're in place, which could help slow house price rises when the OCR eventually falls. It's still conforming with the long run average, so maybe they shouldn't cut.

Tax cuts will also put more cash in pockets at the end of this month, what influence  may this have on domestic inflation? the local body rate rises will also hit in the upcoming quarter.  Restricting councils by legislation to hold rates increases to within the CPI movement may well have value - the rest of us have to earn what we spend - they just have to hold their hands out, sort of modern day highwaymen.

Yeah, sure, David.

But what about the real world?

Is anyone going to tell the RBNZ (and many idiotic pundits) that hiking domestic interest rates - and holding them too high, for too long - also takes time to trickle through the economy?

Or put another way - businesses will often hold off price increases for as long as they can - especially if they're not monopolies or oligopolies. (These are the the biggest employers in NZ Inc. i.e. small businesses).  But eventually the higher costs of working capital have to be passed through.

Or put another way - just like how how OCR increases take time - 2 years - to trickle through the economy - so do the costs of higher interest rates!

Why the RBNZ is surprised - or anyone else for that matter - by 'sticky' domestic inflation - aka non-tradable inflation - simply astounds me. 

Like I have said ... If they'd started the easing cycle back in November 2023, domestic inflation would have been (note the past tense) going backwards at the same rate as 'imported' inflation.

Sorry - worst RBNZ we've ever had. By a huge margin

(from another thread)

Why just a number of economists, are there any economists seriously not predicting a return to sub 3% when the Sep 23 1.8% rolls off? 

Inflation is currently running at 2%, if you are lucky, its just that we measure it by including last years data, which is crazy if you think about it for more than 2 seconds. We are in the target band.

OCR is at 5.5%, so a full 3.5% above inflation.  Rates needed to drop yesterday, RBNZ should drop rates by 0.75% come August to make up for their lateness. But they won't, likely they will hold, then be surprised at how big of idiots they are (just like "transitory inflation", which they never got pinged for).