Latest inflation figures have provided a very nasty surprise, making wholesale interest rates leap and prompting forecasts of much bigger Reserve Bank interest rate hikes.
Significant mortgage rate rises are inevitable sooner rather than later.
Inflation has fallen very slightly to 7.2% for the year to September, down from the 32-year high of 7.3% hit in June.
But the result, which featured 2.2% inflation in the September quarter, is much higher than any market forecasts. And it very probably means the Reserve Bank will hit us with a 75 basis point rise to the Official Cash Rate (currently at 3.5%) in November. See Stats NZ media release here.
Wholesale interest rate markets boiled after the unpleasant inflation shock, with the two-year 'swap' rates for example surging by 19 basis points. A 75-point OCR rise next month is now about 85% priced-into rates while the markets now also pricing a better than 50-50 chance of ANOTHER 75 point rise in February.
At current wholesale market pricing, a peak OCR next year of around 5.3% is now being seen.
With wholesale rates at such levels, significant mortgage rate rises will already be being contemplated by the major banks. Expect these very soon.
After the inflation figures were released by Stats NZ on Tuesday, ASB economists were the first out of the blocks to officially pick a 75 point OCR rise next month - with two more 50 point rises early next year, giving a peak OCR of some 5.25%.
ANZ economists, who had previously had a market leading OCR peak pick of 4.75% for the middle of next year, also quickly changed their call, and now expect the RBNZ to hike the OCR by 75 points in both November and February before stopping to take stock.
"This takes the OCR to a peak of 5% by February (previously 4.75% by May). Both hikes are contingent on global financial markets keeping it together," ANZ economist Finn Robinson and chief economist Sharon Zollner said.
"Such large moves so late in the cycle are risky, no question, and could well turn out to be a mistake. But today’s data gives the RBNZ little choice. They are further behind the inflation game than thought,"
BNZ head of research Stephen Toplis is also now picking a 75 pointer for November, but says this "may be the straw that well and truly breaks the camel’s back".
"We remain forecasting a 25 point hike at the [RBNZ's] February Monetary Policy Statement and we believe that the Bank [RBNZ] will use this Statement to explain why it has done enough. This should be relatively easy as it will be clear by then that the economy is headed into recession.
"Whatever the outcome we do not believe that current market pricing of a 5.4% terminal cash rate is sustainable. At rates approaching anywhere near that level the economy would be well and truly buried," Toplis said.
ASB senior economist Mark Smith said there is still "a large bow wave of inflationary pressure in place", with high rates of core and non-tradable (domestic) inflation still in evidence and the risk of these outcomes becoming increasingly entrenched.
"Inflation is much too high. Increasingly restrictive OCR settings are required," Smith said.
Kiwibank economists actually raised their forecast of the OCR likely peak twice during the morning, first from 4.0% to 4.50% and then to 5.0%. They also now expect a 75 point rise next month.
"Today’s report will be like a red rag to an inflation fighting bull. We have no choice but to expect a more aggressive RBNZ response. The CPI report was a shocker, to put it politely," Kiwibank chief economist Jarrod Kerr said.
The RBNZ had picked just 1.4% inflation for the quarter and an annual rate of 6.4%, although this pick was made back in August. Major bank economists with more recent economic data to go on had annual inflation picks in the 6.5% to 6.9% range.
So, the actual figures are a big shock.
The main culprit in the surprisingly high overall inflation numbers is domestically (IE in New Zealand) generated inflation, which hit an all-time high of 6.6%. That's a resounding shock and shows how hot inflationary pressures are within the country.
The 6.6% domestic inflation figure is the highest since Stats NZ started that data series in 2000.
As of June the figure had stood at 6.3%, so, the rise has been quite significant, as well as totally unexpected.
Stats NZ said construction of new dwellings, rentals for housing, and ready-to-eat food were the biggest contributors to the movement.
Imported, or so-called 'tradeable' inflation (things like oil prices) fell due to lower oil prices. Although, at 8.1%, down from 8.7% in June, it didn't fall anything like as much as expected.
Stats NZ said higher prices for petrol, vegetables, and international air transport were the biggest contributors to the tradeable movement.
But the big thing for us is the 'non-tradeable' figure, the domestically generated inflation.
That's trouble for interest rates.
The RBNZ has little control over imported inflation, but can try to rein in domestically generated inflation through hiking the Official Cash Rate. Already this year the OCR has been hiked by a record (for a calendar year) 275 basis points to 3.50%, with more to come in the final rate review for the year on November 23.
At its last rate review earlier in the month, the RBNZ pointedly mentioned that it had seriously considered raising the OCR by 75 points before finally deciding to raise it 50 points. Since those remarks were made market speculation had increased - even before the inflation figures came out - that the RBNZ will next time hike by 75 points.
Now a 75-pointer is seen as a racing certainty. The only real question is whether the RBNZ might even start to lean towards 100?
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270 Comments
The main driver for the 7.2 per cent annual inflation to the September 2022 quarter was housing and household utilities due to rising prices for construction, rentals for housing, and local authority rates. To be expected considering these factors. Watch next announcement.
I'm not so certain of this massive recession. Firstly, ordinary homeowners with a sensible mortgage aren't likely to hurt badly even at 7-8% interest rates. Secondly, of the small group that do need to cut back significantly as rates rise, I think most will primarily cut down on luxury goods and services like eating out. The former are mostly imports that contribute nothing to our economy, the latter will be propped up by returning tourists. Where are the job losses coming from? Maybe construction but right now that still has a backlog...
The coming recession will be harsher than most have experienced. The construction “backlog” will quickly vapourise as people finally work out that much higher construction costs and much lower property values make projects uneconomic. Regardless of level of exposure to higher interest rates. Construction has been a large employer, so will contribute significantly to rising unemployment and in turn the downward recessionary spiral. The silver lining after a few years of pain will be sensible house prices again.
Sure. The question is whether house prices will fall to the extent that new buyers have lower repayments than they otherwise would have.
Even in Auckland, where house prices have fallen a significant amount, I haven't had the feeling that the market was in any sort of panic. If we see some more significant rate increases, and this latest inflation figure certainly points towards that, then I think we could see a real change in the market.
Once the panic starts, it will be like the spawning of the salmon in Canada.
Everyone trying to swim upstream all at once... bashing themselves on rocks... launching themselves at waterfalls... blindly panicking and flailing around... gasping for air.
There will be a switch from famine to feast for property bears. You will be able to just stand on the side of the stream and hook bargains up at will.
I am not sure anyone will be able to determine what is a bargain for ages this time round.
Days of 'house prices double every 10 yrs' are gone. At the mo its looking more like (accounting for inflation and exchange rates) 'house prices halve every year'.
This will play out over a much longer period.. as did the 10 year boom. Buying too early - by thinking a bargain price is somehow related to 'a certain percentage drop from the peak' will be the mistake. The ocr will be very high for a long time and the new normal median price will be waay lower for much longer.
It’s not a shock. It’s a reality check. Some time ago Finance Minister Robertson explained to Hoskings that. “ most people think inflation will peak at just over 7%.” Didn’t go on to say what he personally thought though and Hoskings didn’t press him on that either as he should have. But Robertson will now claim he was right of course. What he will not admit to though, is the sustained damage of inflation compounding firstly in building up to, and secondly then running for six months over 7%. Old Rufus Dawes was right, way back when he taught us in the sixties. Governments that print money wilfully, willy nilly and without any serious investment disciplines or objectives, can expect to eventually get a crippling load of inflation dumped right smack bang on their doorstep. And here we all are now.
Hey Foxy : we should run a poll , which happens first : Kiwibuild gets to 100 000 houses built ... or ... the RBNZ gets inflation back into the target 1-3 % band ...
... could be a long wait ... I'm going with the RB ... if a new government replaces the guv'nor with someone more capable ...
Not yet, but after this election we can make it so. Major parties only get major by votes, so let us all vote on policy next year and not on people or the red or blue. We have this chance to reshape New Zealand for the better and the greater diversity we have, the more differing opinions at the top, the sooner we can dismantle the historical red and blue pendulum.
My wife is a government employee. Today, she received a pay rise of 18%, backdated. It was one of those pay equity adjustments. We will take the money, but any assertion that JA and Co have clean skins on this is ludicrous. Worst PM and Government in living memory
Retired Poppy, can you not see the irony of a Government that says it focuses on the poor, making people like my household more wealthy while 10,000 extra mouths need food assistance? They are economic vandals. Splashing cash everywhere like a drunk sailor on pay day.
National are promising to stick by their irresponsible tax cuts here;
https://www.newshub.co.nz/home/politics/2022/10/cost-of-living-crisis-c…
Please feel free to share your solutions together with details of a Political Party that has a remote chance of winning at the next election. Utopia is calling your name.
I'm curious about Rex's views on this too.
If this is the worse PM and Government in loving memory, based on their proposed policies, is National the worse opposition in loving memory and would Luscious and current National party be an even worse PM and Government than Labour?
Wrong.It is obviously our slavish adherence to the Shakespearian colonial economic model. When the new improved Aotearoian history is invented and written up, those of us fluent in Te Reo will be able to read what actually happened here, and will be able to take advantage of conditions as they crop up. Now to check my family tree to confirm that Mahuta whanau link for my next job.
The main culprit is the surprisingly high overall inflation numbers is domestically (IE in New Zealand) generated inflation, which hit an all-time high of 6.6%
Damnit, now we can't blame everything on Putin. I guess we hope for a new wave of COVID-19 in New Zealand so we can go back to blaming that?
Well that didn't take long. Over at The Guardian, Edward Miller, a researcher and policy analyst at New Zealand's First Union, seems to be blaming both at once:
All of this should underscore to the Reserve Bank that for the most part we’re not dealing with a demand-driven inflation situation but rather a supply-side jolt, from a combination of Russia’s invasion of Ukraine and post-Covid supply chain shocks.
Offset the money you will lose selling your home by uising No Agent: www.noagent.co.nz
Great.
Then you'll only be down 20% instead of 23%.
Admittedly it would probably give some pleasure not paying a real estate agent but still......it's hardly going to save your investment.
As I understand it real estate is not a particularly liquid asset.
So you probably aren't going to sell diddley squat for awhile except with a massive hair cut.
Even then.....outside people who don't care about the money, why would anyone buy a house right now?
Just shows you that Bank economists know jack....may as well have a chocolate wheel. Talk your way out of these Grant and Cindy. The whip from the tail on some sectors (construction, retail etc) after all these interest rate raises about to happen is going to be something.
Yup. I’ve been saying for a while that we need either positive real rates or demand destruction to get inflation back under control, and todays number seem to support this.
The inaction from the RBNZ (and central banks globally) has painted us into a corner where it’s a very real scenario that rates will have to remain high for 2-3 years even as the economy tanks and unemployment rises.
The end-game of the “central bank bubble” was always inevitable - it looking increasingly plausible this might be it
Many people believe that a weather vane points in the wind's direction of travel, rather than where it's coming from.
The wind coming out of Church and Alexander is much the same. It may appear to be blowing in one direction, but in reality it's the complete opposite.
Unless or until we get the OCR above the CPI reading, the figures could conceivably keep rising, as each less than necessary OCR rise just gets factored into the next reading. An Inflation/OCR Spiral, in other words.
This needs to be sorted by the RBNZ, fast and hard.
Mucking about with incremental OCR rises that lag the economy could be worse than not going hard.
Agreed.
I fail to see how you can get inflation down unless your rates are higher than your inflation rate.
Of course inflation could still stay high, with idiots playing pissing games in Ukraine and magical zero covid thinking in China. And what the he'll are Japan thinking. Japan has to blow up soon right?
I think if ce tral bankers do the right things stagflation is pretty likely.
But will they?
I don't see any leadership out there. You know doing the tough things because they are right, rather than doing what the focus groups and polling tells you is politically expedient.
There seem to be a lot more Gideon Bonos than Paul Voelkers.
In which case I propose we put the seagull on the nz trillion dollar note. Seems fitting.
This is a nasty, nasty surprise. I did not expect such worrying numbers, and this should cause a significant change to the current timid monetary stance of the RBNZ.
Inflation is truly getting out of control, and the domestic component is shocking. We must have an emergency OCR rise by at least 100 bps NOW, and another 50 bps raise next month. Until early this morning I thought we could wait until next month for such a 100 bps raise, but today's numbers are a clear indication that inflation is rampant and increasing. The RBNZ must act TODAY.
The OCR must be 5% before end of the year, and it will have to go up to between 5.5% to 6% by mid next year at the very least, possibly higher. Not acting timely and aggressively will cause the OCR peak to go even higher.
I see a lot of government expenditure in certain sectors, the OCR is not and never will be a silver bullet. It needs a coordinated approach on fiscal and monetary policy.. in addition, to some additional micro economic policy to have any chance .. likelihood of that happening?
The current turmoil is best explained as a combination of an unprecedented supply crunch and artificially high demand.
Migration might bring some relief with wage competition and gradual increases in production but having more labour supply won't itself solve issues in food, housing and energy.
You are so right, i was surprised with the picking of lower by all the commentators yesterday and thought it must be because of the stat collation and time series changes that they were so confident. Didn't think it would reflect reality. I own a couple of Accounting firm's, every client has increased their prices and their wages so could tell you easily domestic inflation was imbedded based on the last qtrs. figures. My surprise is the stats actually reflect that.
Diesel prices are still horrendous compared to historical levels and that feeds into EVERYTHING,domestic and international.
You can't blame Mr Orr & Robbo for that...Ms Ardern may be a saint,but she can't turn water into diesel yet..
https://www.1news.co.nz/2022/10/15/diesel-price-soars-past-petrol-just-….
Global events, like the OPEC+ alliance of oil-exporting countries' decision to cut production earlier this month and a fuel refinery workers' strike in France, have raised the price of petroleum products including both diesel and petrol.However, the reason why diesel now costs more than petrol can be traced to both the recent post-pandemic travel boom, and the arrival of the harvest season north of the equator."The northern hemisphere is using a lot of diesel right now because it's used in all the agricultural machinery and heavy transport trucks," Collins said."Post-Covid flights have taken off. Well, [jet fuel] is just kerosene."He notes during the refining process, crude oil is broken down. Some of that extract, known as middle distillate, can be used to make either kerosene or diesel, but not both.The end result - the recent demand for jet fuel has also squeezed the price of diesel.But while those at the pump may be feeling the pain right now, he says the situation is only going to get worse."It's just the beginning. Next year's going to be really scary," he said.
My wife, a government employee got an 18% pay rise today. Love the money, detest the PM and Government as economic vandals. We spent the COL in Paris. Not sure where we will spend the last pay increase, but it will likely be overseas again. Doing our bit to reduce NZ Domestic demand.
Well,spend up large,when Mr Seymour is deputy PM,he apparently is going to 'clean out' government employees...someone has to pay for your tax cuts...
And as an airline employee...thank you so much for returning us to profitability...you don't have to be in the dairy industry to 'milk it'
Bringing CPI back into a comfortable range means cheaper TVs and shoes imported from Asia to offset higher costs of food, healthcare and housing in NZ.
The toll these perverse outcomes have taken over the last couple of decades on quality of life, economic productivity and wellbeing here in NZ holds zero weight in central bank policymaking.
We are just feeling the effects of the wage rises and costs as they filter through the economy, did they really think closing off the border, getting record wage rises, increasing number of people employed by government was not going to have an impact.
A huge number of government jobs only create demand, they don't create anything that people want, they remove people from producing something that may be sold or exported.
We have all heard of good debt and bad debt, well we have good jobs and bad jobs, and bad jobs are those jobs that don't make the boat go faster, to take a phrase from the America's cup.
The RBNZ has a lot of mahi to do from here. Any Central Bank fighting inflation needs their cash rate above the rate of inflation. What highlights how much the RBNZ is lagging in the fight is the difference between the two. It reached peak negative in March 2022 at -5.9% (OCR - annual CPI) and THEN they started with their 50bps hikes versus the more sedate 3 x 25bps hikes they had been doing prior to that. They need to do a lot more work and there is not much left of the runway before Christmas. Markets will lift pricing closer to a 75bps hike for November which is a full MPS https://www.rbnz.govt.nz/news-and-events/events/2022/november/monetary-… be sure to be tuned in for this as it might even be more exiting that a meeting between Wayne Brown and Jacinda Ardern (maybe that was an exaggeration)
That's exactly correct. This number is way worse than it looks. The fact we had the big jump from the Sep 21 quarter drop out of these figures was a large part of the reason everyone expected a decline in today's reading. But we've gone and generated almost as much inflation lately as we did back in Sep 21. It's pucker up time if you have a large mortgage debt that's resetting soon. Life is about to get really expensive.
Which Property Broker said that Interest rates are likely to have less impact on the housing market than many here believe?
For the sake of many peoples finances, he'd better be right😳
When it was obvious to many how cheap money held valuations of everything aloft, its such poor and short sighted advice to dish out in the first place😬
Rates have risen much more than many with skin in the game, would dare to believe. House prices falls have left them scrambling for answers in the stars🌟 or worse, Tony Alexander 🦍
The OCR will not tame inflation on its own. Will an increasing OCR cause the international price of oil to drop? No. Will it cause the compliance costs of NZ business to drop? No. Will it make importing many of the basic consumer goods we consume cheaper? No. Is it easy for journalists to write about. Yes.
Bang on. I don’t know why so many commenters accept the OCR as being effective. I cant see any evidence that it is:
- house building and house renting are driving inflation. So the “solution” is to increase interest rates that developers have to pay, thereby reducing housing supply further, thereby increasing house prices more? Beggars belief.
- same with food costs. How does increasing cost of finance to businesses help them increase food supply? Would seem to do the direct opposite!
If we were really interested in inflation I think we should be focussing on:
- proper regulation to ensure competition in all markets
- funding ASSISTANCE to those industries that have capacity issues driving inflation.
interesting that the numbers were up up for house construction, rental accommodation, and take out food.
house construction linked to supply chain disruption, and take out food is just passing the wholesale inflation to the end consumer.
rental increases is directly related to the actions of the central banks increasing the costs of owning a rental property via interest rates. so the rbnz raising rates is in effect raising rents.
"ASB economists now see 5.25% OCR next year as searing domestic inflation of 6.6% has kept overall inflation much higher than economists and the RBNZ expected:
Why cant for once RBNZ be proactive instead of trying to do catch up - LEAST REGRET is missing.
Now the real estate agents marketing strategy will be to Buy now before interest rate goes up but hopefully if the rise in interest rate matches the fall in house price, it is better to wait.
HouseMouse, what are your predictions now? I was with you that the RBNZ would overcook their response (or perhaps already had), I’m prepared to admit when I’m wrong. They probably will eventually, but maybe that will be years away? Or will they just keep raising the OCR until the eventual destruction of the economy and demand, that could occur mid next year still, although not that many reviews until then.
I have recently admitted I was wrong Jimbo. I didn’t think ‘high’ inflation would be this persistent, I thought we would be in recession by now and experiencing demand destruction, and inflation would be moderate at worst. Obviously I underestimated lag effects, the hot money has been hanging around longer than I expected.
So who knows.
Although I do think at some point the economy will weaken significantly and inflation will start falling significantly. Will that be mid/late 2023, 2024, or later?
You are prepared to admit when you are wrong. But HouseMouse will never do that. He still does not believe banks are selling 7% Mortgages.
Enjoy whats below.
by HouseMouse | 10th Sep 22, 4:57pm
Well, you know my thoughts on economists :)
However current and former bank economists must know a thing or two about this, and most of them seem to think fixed rates won't go much higher than 5%, even if the OCR goes to 4%.
Up
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by Fitzgerald | 10th Sep 22, 5:29pm
Mate, if you can look at that laundry list of massive, global, disruptive inflationary pressures and STILL believe the economists, then there is nothing more to say.
This seems to be like a national sport here on interest.co.nz; make 50,000 wild predictions, and then when one of them happens to come true, go off on a self-congratulatory tirade about how amazing you are while ignoring the other 49,999 predictions you got completely wrong.
Wow you are special.
I have admitted several times my errors. Will you admit yours when fixed interest rates are not 7% before December 2022, and house prices are not down 30%?
your spouting under several guises is annoying spam. What is even more surprising is how much people here seem to like it.
More false accusations HouseMouse. I only have one account, I know you have 2. The prophecy from The Prophet was for 7% Interest Rates this year, Guaranteed . Prophecy Confirmed. If you feel he said otherwise then prove yourself, but you cant.
North shore down 28% already HouseMouse. See if you can get that corrected if you differ.
https://www.stuff.co.nz/life-style/homed/real-estate/130137138/house-pr…
HouseMouse you claim to admit your errors. Well The Prophet is awaiting to here you apologise and also congratulate him.
It was actually only a part of our mortgage that we will pay off in just over a year so I took the 1 year rate. The big part of our mortgage comes up in July next year which I thought would be on the downward slope but that looks unlikely now.
I wouldn’t take advice from anyone TBH, the future is very much a lottery right now. I’m sure all the DGMs will say fix for 5 years (or sell), they could be right but either is a big call if they are not.
Thanks for that. Yeah I don't tend to take direct advice from people, more just throw it in the mix and make my own decisions. Everyones circumstances are different. I am leaning towards the certainty of a longer term and can get 4 or 5 years at 5.85%. Which doesn't seem to bad at the moment with the outlook.
How is it possible that with the 1&2 year swaps at pretty much 5%, that we can have 1&2 fixed mortgages at 5.5% and 5.75%?
Could it be that the Reserve Bank's FLP is working against the rises in the OCR?
What will happen to mortgage interest rates when the program ends in December?
its all part of Grants master plan, he is in this with Orr. The OCR will go way higher, pain will be felt by all, the lag from the raises taking effect in the real economy will hit like a freight train out of control. He will then annouce tax cuts, people will look at him as the great saviour, and then call a snap election hoping people forget the pain they are in with the short term euphoria of the tax cuts.
ACT...crikey,people bang on about this government having no experience...there is a reason you only see Seymour and occasionally Brooke...after that there is the gun lady...then can anyone name an ACT party candidate?The talent pool is very shallow...but I look forward to the new Utopia that NZ will become...
As for TOP...the average "hard working kiwi" won't be happy when they here about a land tax..."that's my money" they are stealing...
I mean, if you actually look at the ACT candidates they are experienced in the portfolios that they are a spokesperson for. Whether you think they're talented or not is your opinion.
- E.g. Chris Baillie (22 years as a teacher, 14 years as a Police Officer, owns a small business) Spokesperson for Small Business, Education, Police
- Simon Court. (23 years as a Civil and Environmental Engineer) Spokesperson for Environment, Climate Change, Infrastructure, Transport, Local Gov)
- Mark Cameron (Farmer), Spokesperson for Primary Industry, Forestry, Regional Economic Development, Fisheries
- Damien Smith (Ex-Banker, corporate finance, has consulted to Vero/Tower insurance, has an MBA) Spokesperson for Commerce, Revenue, Statistics
- Nicole McKee (Ran a firearms safety training business/4 time NZ shooting champion/12 years as a legal secretary) - Spokesperson for Veterans, Justice, Firearms.
What happened in Sri Lanka and what is happening in UK, are they in isolation or indication of things to come.
Will RBNZ do an emergency meeting or will still idle away the time.
No country will be immune and earlier they act the better as may feel the pain but short pain is better as sharper is unavoidable.
Now is the time to act aggresively and think out of the traditional box, just as they did in April/May of 2020.
We definitely don't want them thinking outside the box. The last big idea was giving everyone free money and pretending it would last forever. Look how that ended up.
Now, they have to continue to raise rates, and not listen to the pain of the people that thought they had taken advantage of a once-in-a-lifetime handout of free money. Now is the time to save what we have got before we lose everything.
The RBNZ governor will not be there next year, and neither will be Labour government. National and Act cannot fix the mess, the mess is too big. The cycle will turn naturally in a few years and until then National/Act will blame Labour for it.
The mess was created by both the major parties of Natbour. And the giving everyone free money - especially the billions upon billions to property - was very much trying to protect the mess those major parties had created through their silly economic policy of the "wealth effect".
That may be so, however, Labour have really taken a blowtorch to it, and roughly doubled the price of housing in a few years (whilst apparently trying to make housing more affordable). Anyhoo, the most recent and largest screwup in living memory is now being unwound. We are all paying, some more than others. I have a mortgage, but it is fixed in the 3s for 5 years, so I will not feel the pain from housing and interest rates. Many will. I will suffer to a certain extent as my share portfolio is exposed, but, luckily most of it is outside NZ, it will come back over time. and I don't have to pay interest to anyone as a result of those investments.
I agree. Their biggest mistake was going John Key 2.0 and turning around from purporting to address the housing crisis to "everyone wants the value of their primary asset to keep going up", abandoning CGT, and protecting property from hard times. They made progress on tenancy laws and (eventually) some taxation, but overall were pretty National.
I'm also pretty fortunate. Small mortgage principal and payment, and fixed for some years.
Well, this was utterly predictable.
All the wailing and gnashing of teeth about how inflation MUST be falling any day now because demand destruction... when we haven't seen ANY demand destruction. Retail sales continue to rise, hospo booming, employment at record lows. What demand destruction?
Imagine how surprised they'll be when supply chains and inventory normalise and inflation keeps rising anyway, because it's not about supply chains and inventory. We collectively magicked untold trillions of 'wealth' into existence without increasing physical supply one bit. The only way to restore order is to destroy the nominal value of that wealth, which is likely, or somehow massively increase productivity, which is not.
Debt based economies.. In the early phase of an interest raising cycle,,, people are trying to increase their ability to ward off increased costs. Trying to get wage increases, trying to off set wage increases with price rises for goods and sevices. Until we kill demand local inflation isnt coming down.
The currency may weaken, i.e. inflationary. Expect the 10 year to hit new highs in the next couple of days. Why should anyone lend the government money at 4.5%, when it is depreciating somewhere over 7%. The RBNZ is blowing in the wind and without significantly higher rates it has control of nothing.
Mea culpa, mea culpa, mea maxima culpa. I was wrong on where interest rates would go. For a long time I thought that they would not reach 4%. Now? 5% seems almost a certainty and then?
The funny thing is that on a purely personal basis it suits me very well with no debt and lots of cash, but i still think that we face a significant global recession.
Sounds like the RBNZ raises have not done much, perhaps they are ineffective against the kind of inflation we are experiencing - which is my suspicion. So we may see more increases which will certainly make things more difficult for people and get them to lessen spending but will that get inflation under control? I doubt it.
Yawn I have been calling for 100bps rises since I cannot remember when (well I can because everyone was laughing at me) and finally everyone is jumping up and down yelling for a 100bps rise. With the massive gap between November and the following review in February it's only logical to go 100. They let inflation rip, the only conclusion is that it was deliberate.
Just because you were right that does not make your original logic correct, there is always an element of luck in future predictions. I went down to the casino last week and put $10 on red and won, so should Adrian Orr have had the same foresight as me and put the economy on the table?
No, it will be with future generations money as always. Whatever wrapper they put around it, it will appear on the national balance sheet as a govt debt that will get paid down (with interest) by the taxpayers that are currently at the earlier stages of their careers.
Rates bill - promised 9% average raise for this year, came in at 16% increase!!!
Environment Southland rates - promised 5% average increase for this year, came in at 21% increase!!!
How do they get away with this, are there not laws against false advertising.
Note the environment rates came out just after the elections!!!
Inflation has a long way to go yet, inflation in the service industry is just taking off.
More fool you for living down there...we elected Mr Brown up here in AKL,we have no more road cones,all bicyles have been confiscated,I can park my SUV where ever I want to now...that's if I don't catch the CRL into town,that opened yesterday,early and under budget...
Everyone agrees that 7.2% is bad but no one realise how bad the number is when it is comming after raising OCR from 0.25% to 3.5%.
To control, RBNZ has no option of going soft (Yes raising 0.5% is timid in current situation though many may feel otherwise) but RBNZ should go all out as this data is the final confirmation, leaving no room for Mr Orr to manipulate and escape.
David, this data after so called massive rise in OCR ( though should be sitting in 4s) is more dangerous than 7.3% earlier. Need seperate article focusing on it in interest.co.nz as why 7.2% is worse earlier than 7.3%.
Genuine chance he goes +100 in November given the large gap until February's meeting. Orr is the kind of personality who can act outside normal envelopes if he feels the need to (remember his random 50bps cut in 2018).
If he does, it'll be wheeling out the howitzer to blow himself away as the economic wheels start to fall off in Q1.
So many people have got a mortgage and paid way over value for a house, a 900k mortgage was $850 a week when rates were 3% now at 7% will be around $1400. With inflation at 7.2% and people living week to week once people have to refinance defaults will start to occur,over the next few years we are going to see house price crash on steroids.Anyone who has purchased a property in last four years will more than likely be in negative equity.
That is because house prices are proportional to interest rates. So record low interest rates, resulted in a record high house price bubble. However when rates rose in the last cycle, house prices didn't really drop . The price to build is still rising a lot.
Banks were stress testing people at a lower rate that 7% in some case, and I don't know if they also factored in inflation as well.
Only one problem, the money to fund it comes from left overs of the Small Business Cashflow Loan Scheme, and money remaining in the COVID Support Payment allocation. This will run dry by 31 January. They would need to fund an extension via new debt..... more rampaging inflation!!
its not a shock --- anyone in the real world already knows this - 2 coffees and two slices $23 -- breakfast for 4 $130 --- deisal $2.70+ All food significantly up --- all utilities power water gas etc all up well above inflation -- insurances 12% +
only those with vested interests in drip feeding the bad and increasingly bad news have said it had peaked -- check out bank property experts -- every 4 weeks they revise their property fall forecast drip drip drip
Real Estate lobbying started in full swing.
Email from Ray White - East Auckland to all on their mailing list :
Good morning,
Compliments of Team.........., we like to extend an invitation to Tony Alexander's "Passion & Property" LIVE STREAM, this Wednesday 19th October 2022; 6pm to 7:30pm.
Don't miss out - click on links below.
Kind Regards,
That is hilarious! I wonder if he will call in sick...
You can't blame him if he just has an eternal optimism for property prices, it has been correct for so long. But this feels a little more corrupt than that.
It seems like a bad move on his part, surely the end of any career as a proper economist and how long will the property spruikers prop up his salary once it all goes even more pear-shaped.
https://www.instagram.com/reel/CjzP5nZO9VV/?igshid=YmMyMTA2M2Y=
‘Tony the comb’ is now getting angry and saying people are stupid to wait for another 5% fall in value
Huge inflation shock - now we wait for Orr
Why we wait for Mr Orr......what is the expectation ?
It is fairly obvious inflation is way higher than possibly even these figures show. I don't know if the CPI even takes into account shrinkflation which is happening as well. Lack of competition also means that companies are putting up prices because they can do it with a good excuse. Maybe they should stop the FLP now.
I dont see OCR going past 4.25 this year or next ...Next bump possibly the last , too much risk pushing it higher. I cant see the Fed wanting to push past 4.25 this or next year either...more a case of wait and see . Nice everybody picking blood on the dance floor but crashing markets is a prohibited activity that no government or financial institution would want happening. Obstacles that might push it past 4.25 next year fuel prices and wage inflation, fingers crossed everyones got that rise they were after already. What bank forecasts an OCR figure that is not sustainable ? Where is the logic in pumping out such numbers . I think the RB is in the zone, it could have done with an extra .25bps last round but I think its actually making in roads .
It's incredible. The NZ Government has spent so much money that inflation has popped up all around the world.
On a side note, how's your investment plans coming along? Have you managed to leverage any equity out of your first home into an investment property yet? Or is that why you're on here venting lol....
That would be relevant if anyone claimed we single-handedly caused inflation in other countries. Can't see anyone doing that here.
But how many times in a row have RBNZ missed their own forecasts? They're literally the ones who are making the decisions here and they keep getting this wrong. Given that Orr serves at Robertson's pleasure, and given there's been no consequences for these repeated misses (and given the now-likelihood of it impacting our financial stability), one can only assume he is quite happy with the situation.
Adrian Orr has a fixed term contract that runs finishes next year. Are you privy to the performance criteria/KPI's in his contract?
Are you suggesting that Robertson should fire Adrian Orr? If not, then all you're doing is drawing an extremely long bow by assuming Robertson is sitting idle with glee at Orr's poor performance. The usual partisan stretch.
Oh, now I have to have a copy of his contract before I can offer up any meaningful critique? Spare me the every-widening net of excuses for not holding RBNZ accountable in a manner that would allow the public to have some confidence that it actually mattered to someone.
If you want to write that off as a 'partisan stretch' without a hint of self-awareness or irony then please feel free to do so.
You're implying Robertson is happy with Orr's performance because you personally haven't seen any consequences for his failings. That's the partisan stretch. You have no clue what's happening behind the scenes in Orr's employment concerns, conveniently using that obscurity to push your partisan critique of Robertson.
Given that the RBNZ is supposed to be independent and all.....
Check my other post. I just gave an update on my situation! I didn't end up buying another property as I had left. But I did pay off everything since the interest rate is going higher and my USD currency was getting stronger recently. It was too good to pass up the buying opportunity. Now I have a good rental property in NZ and a potential future settlement when I retired :)
Hope your plans are working out well NZdan, you seem very frustrated and happy that economies and livilihoods are crashing... Hope you are doing ok....
I responded to that post but I thought I would paste my response here.
I might also add that changing the USD to NZD AND then putting it into what looks to be, in the medium to near time, a declining asset doesn't appear to be that intelligent. You could have swapped to USD and simply bought US Treasuries - returns of 4+% backed by the US government. Now (assuming what you say is true), you have an asset denominated in NZD and paying you rent in NZD - which is useless everywhere around the world other than in NZ. And the NZD is currently being pummelled. And then you still want the OCR to be kept at the current levels rather than increased to protect the NZD and the NZ economy. Just wow. Is there some kind of esoteric currency/property play that you are thinking about?
"Bless your soul LOL.
1) Your story doesn't sound believable given your past posts and what NZDan has shown in your previous posts. Also, pretty sure you were quite definitive about buying a investment property in your language lol.
2) If your current story is true, you are a real bagholder. You went to pay off your mortgage in full. No wonder you are heavily vested in keeping prices up. Because if prices correct any further, you are (or could be potentially) left holding the bag since you paid off everything in cash. You got the property game wrong dude - you are supposed to let the bank hold the bag and not hold it yourself! And let me guess - if you make your salary overseas, no bank will lend that to you today to buy another house so you cannot remortgage the property to get that cash out.
You are the true king. You win."
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