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
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.
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.
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.
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.
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.
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
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
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.
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.
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.
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%
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.
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.
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.
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.
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.
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
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.
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.
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.
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.
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.
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
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.
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.
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.
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
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.
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.
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 👏
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.
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.
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.
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?
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.
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.
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.
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.
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
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.
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?
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
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.
"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%.
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.
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.
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.
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.
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.
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.
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.
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 .
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