Policymakers at the Reserve Bank (RBNZ) thought seriously about lifting the Official Cash Rate (OCR) above 5.50% at their May meeting but opted to hold fire for now.
Governor Adrian Orr told reporters the RBNZ's Monetary Policy Committee gave “real consideration” to a hike and spent “a lot of time” discussing whether inflation was falling fast enough.
Progress on inflation has been disappointing the bank and pricing pressure in the short term appears to be surprisingly strong. However, the medium term outlook was more promising.
“Monetary policy is unambiguously restrictive … and the output gap is growing, so we know we are going to get there. That was the balance of risk, and we thought ‘no; patience still’, but that gives you a sense of the challenge around the table,” he said.
In the short term, the Reserve Bank is facing stubborn inflation, falling productivity growth, and uncertainty about when price-setting behaviour will return to normal.
The central bank lifted its projected OCR track from a peak of 5.6% to 5.65%, in a hawkish move that took markets by surprise.
Gareth Kiernan, chief forecaster at Infometrics, said this forecast track implied that another interest rate rise was “more likely than not before the end of this year”.
Stephen Toplis, BNZ’s head of research, said the higher track was a warning shot for those who thought rate cuts were on the way.
The retail bank has shifted its forecast for the first rate cut to occur in February 2025, instead of in November this year. The RBNZ’s own track suggests around August next year.
“Of great importance is the fact that the Bank no longer believes annual inflation will fall well within its target zone in the September quarter of this year,” Toplis wrote.
Forecasts in February projected annual inflation would be 2.6% in that quarter but the RBNZ’s updated numbers for May added forty basis points and brought the headline to 3%.
Despite everything
The delay in disinflation comes despite New Zealand being in a recession with economic growth well below trend and unemployment climbing.
Inflation forecasts have been revised up, even as economic forecasts have been revised down.
Kelly Eckhold, chief economist at Westpac NZ, said the worsening conditions were being cancelled out by lower estimates of the economy's productive potential.
Economic activity has been weak but New Zealand’s ability to produce output has also been falling, which means the demand and supply balance hasn’t changed as much.
It is the same for the Government’s upcoming budget. Whatever spending it includes will be more inflationary than might have been assumed a few months ago.
Kiernan said the lower potential output estimate had resulted in another increase in the estimated neutral OCR, by 25 basis points to 2.75%, but the RBNZ was still being too hawkish.
“In our view, given the clear stresses the economy is currently under from high interest rates and rising unemployment, and that monetary policy is clearly constraining demand, such an extended wait to start cutting interest rates is far too long,” he said.
Governor Orr said one factor in not raising rates was that sectors sensitive to policy changes were mostly not seeing inflation, while less-responsive sectors still were.
Lifting the OCR may only serve to add pressure to already struggling sectors, such as construction, while the problem areas don’t react to the policy change for many months.
Things such as insurance, household energy, and property rates were all adding to headline inflation but were slow to respond to higher interest rates.
“Eventually monetary policy will win the day but they are just less sensitive,” Orr said.
73 Comments
I understand you have one or two tools Adrian, but for just once can you take some responsibility for the damage you did when you dropped the rates way too low and you and Grant basically begged the population to borrow. Yes there are a number on here that said it was a bad idea, I was one of them, but a large % of population are, still are'nt, that informed of the dangers of borrowing such large amounts, and then the rug basically been pulled from under them very very quickly. You sit there now and throw stones at them.
True.
His teammates at RBNZ admitted that the money they created was to pump up existing house prices that would create wealth effect driving up domestic consumption in NZ.
In other words, they pushed debt into unproductive assets that led to higher economic primarily in low productive sectors such as retail, tourism, logistics and hospitality.
And now they want to punish borrowers until economic productivity gets a lift.
Yep the borrow and spend mantra of the last decade to pump aggregate demand is coming home to roost.
We can blame the RBNZ but the change will only come from staring hard in the mirror. The masses didn't have to buy into it.
The productivity dogma is a dead horse. The FIRE industry doesn't encourage productivity when it's a "wealth" extraction process. Selling inflated assets to the next highest buyer to extract more returns does not result in productivity gains. Rent extraction is the game and it starts at the banks and credit creation. Every Tom, Dick and Harry were encouraged to invest in residential property for the past two decades. There's no productivity in that. Boomers weren't going to invest their "hard earned" property gains into productive businesses when the majority are wage and salary slaves simply aiming for retirement. They came from an era of scarcity and deprivation so material gains and "certainty" are a driving influence. When the digital online world is all about gaining followers, repeating and rehashing information, where's the productivity gains? When corporations and institutions treat workers as expendable resources, and maximum profit and shareholder returns are the driving force, where's the productivity investment?
When the overarching narrative is individual material wealth accumulation via asset inflation, productivity takes a back seat. And we fail to recognise intangible wealth. Productivity for the sake of economic output at the expense of productivity for individual and collective wellbeing will create unhealthy results. When the productivity gains are not shared better the incentive diminishes.
At least the US has something to show for with some of that printed money spent on long-term initiatives. The incentives put in place for reshoring (and near-shoring) productive operations and green energy initiatives has in part led to private investments in the US soar to unprecedented levels.
Gross Private Domestic Investment (GPDI) | FRED | St. Louis Fed (stlouisfed.org)
Well pretty much all NZ public sector had a blow out growth with Labour pretty much bending over and signing up for huge multi-year pay increases for nurses, teachers etc so that's something... just gotta hammer the mortgagors/debtors more and she'll be alright :P
Things such as insurance, household energy, and property rates were all adding to headline inflation but were slow to respond to higher interest rates.
by Yvil 22nd May 24, 4:49pm
What rate of unemployment is justified to get inflation caused by rises in insurance, rates, oil, etc... back to 2% ?
Unemployment has gone over 10% before. Unfortunately it will have to rise a lot more before it's over...
Like the economy unemployment tends to be cyclical.
Unfortunately for us (those that stay) the skilled younger generation won't want to hang around so will just fly to aus (as per now) for jobs and a better life we will import unskilled workers.... all lowering productivity, and reducing access to decent teachers and so on.
Epic.
Insurance, energy and rates are not "slow to respond" to interest rates. They do not respond to interest rates as they are not discretionary. The fact that they are all high supports the goal to dampen demand meaning interest rates shouldn't have to do so much heavy lifting...
Productivity = energy efficiencies.
Attempting energy efficiencies usually involves complexity.
Both traverse diminishing-return pathways.
From here on in, financial attempts to alter physics, are akin to pushing a brick with spaghetti.
But we will doggedly adhere to the myth that money'/finance is real.
Productivity = Energy efficiencies and maximising the productivity of your labour pool. NZ can't do much about the former but it can about the later.
NZ has cripplingly high income and company tax rates. These need to be lowered. We can't lower them as we need to provide tax exemptions to the baby boomer property elite. Lower income, trust and company rates and pay for it with a comprehensive CGT. This would result in far greater incentive to carry out productive work which will increase productivity. This would also lower house prices making NZ an attractive place for skilled migrants and crucially disincentivize people to leave. People we need with our ageing population.
We also need to means test superannuation.
Yesterday's MPS document makes for good reading. It's the most comprehensive insight we've had on how the RBNZ is thinking about the stickiness of non-tradeable inflation in the face of very weak economic activity. In short they attribute this to 1) inflation rolling from rate sensitive to rate insensitive components and 2) poor productivity restricting the supply side of the economy. I think this is a pretty fair assessment and it explains their decision to hold rates and aggressively jawbone. They know they'd have to hike very aggressively to quickly stamp out inflation in rates, premiums and rents, and this would put us in a deep recession. So instead they choose to grit their teeth and hawkishly hold while the lagged inflation wave in these areas rolls through.
One thing that stood out to me is the material on page 16, where they show how their internal model breaks down non-tradeable inflation into three components: pricing behaviour, output gap, and unexplained residual. They adjusted the output gap to produce a better fit over the last couple of years, but even with this, most of last quarter's non-tradeable surprise was due to the idiosyncratic 'unexplained residual'. This would have been even more pronounced if they hadn't made the adjustment! The adjustment seems fair, but I wonder if there's some concern that the post-pandemic economy is exposing some undiagnosed flaws in their models.
So, in sum, I'd say the RBNZ feels that the price to quickly bring down sticky non-tradeable inflation is too high (they'll be worried about the labour market), so they'll hold here and grind it out in the hope the disinflation outpaces unemployment.
Surely it is getting clear to everyone now that we have put astrologers in charge of the economy? RBNZ are trying to influence animal spirits, manage mythical 'expectations', and influence 'price-setting behaviours' as if the right words in the right order, and a threat to wiggle their interest rate lever, will cause price rises to moderate. My top three scream into the void things for the day...
1. Productivity is simply a measure of the surplus generated by a business (profit) divided by capital investment (capital productivity component) and hours worked (labour productivity component). So, what happens when (a) banks stop pumping credit money into the economy because interest rates are high, (b) Govt spending reduces, and (c) our current account deficit remains firmly in the red? I'll tell you what happens Adrian - company profits fall (see collapsing corporate tax revenue). Lower profits / surpluses reduce the numerator for the productivity calculation and your 'productivity is falling' red lights start flashing. So, Adrian - the productivity indicator is falling because RBNZ are crashing the economy and stifling business investment.
2. The sticky inflation drivers are easily explained... Imported price shock inflation enters the economy through systemically important prices (oil and food in 2021). Unchecked these critical 'input costs' drive other prices up, and wages eventually respond as workers' push for wages that recognise higher living costs. This graph shows this pattern clearly. Wage rises are now moderating as cost of living increases moderate. Note that higher interest rates have been a key driver of higher costs of living and have clearly driven wage increases. Any fool can see the pattern here. This is why you see the price of labour and labour-intensive services rise at the tail end of an episode of inflation. Wages are playing catch-up. You then get a few loops of feedback - people struggling to pay the mortgage argue for higher wages... the pay of renters also goes up... and the minute that happens, landlords put the rent up. Add in immigration and off we go - near-double digit rent rises adding a percentage point to our CPI. As rents rise, workers put pressures on employers to recognise their spiralling living costs, and back round we go. The other key drivers of sticky inflation are Local Govt rates and insurance costs - both structural adjustments that RBNZ should be looking through.
3. RBNZ are of course banking on making people so poor / unemployed, that prices simply cannot increase. The people won't pay, so prices will fall! There are so many obvious flaws with this logic. I'll pick two. Firstly, households are net beneficiaries of higher rates - RBNZ might be making a few hundred thousand mortgagors desperate, but the banks are pumping billions of dollars back to savers in interest. The more they punish one group, the more they reward the other. It's attritional, dumb, and hugely inequitable. Secondly, they are making the fatally flawed assumption that if some people can't afford to pay the price, then prices will fall. The data shows very clearly that businesses on the whole are responding to lower demand not by cutting margins, but by down-sizing - laying off the casual labourers, reducing opening hours, buying less stuff to sell.
I could go on, and on.
company profits fall (see collapsing corporate tax revenue). Lower profits / surpluses reduce the numerator for the productivity calculation and your 'productivity is falling' red lights start flashing. So, Adrian - the productivity indicator is falling because RBNZ are crashing the economy and stifling business investment.
Question for you JFoe: Given that company profits make up a portion (unknown portion to me) of the productivity equation, are we seeing lower than average productivity currently, and more heavily influenced by the drop in company profits, or is the current productivity discussion an overreaction to the drop in what were record high company profits 2020 onwards? Juts getting a feel if this is as bad as it sounds or if, like house prices, we saw a huge increase in company profits and are seeing the natural swing back and isn't as significant due to this (e.g flawed equation).
Productivity is basically GDP generated by an industry sector divided by total hours worked in that sector (and capital investment). GDP is effectively the surplus generated by that sector (operational income - operational expenditure) - basically profit.
So, if a state electricity organisation goes private, sacks loads of staff, stops investing in or maintaining its assets, and starts making a big profit, productivity goes up a lot because the numerator goes up (surplus generated) and the denominators (investment and hours worked) go down. Indeed, this is exactly what happened in the late 80s and 90s.
Productivity peaks with profits in 2020 and 2021, yes, and it is now moderating back. You can see this clearly here. My personal view is that almost all the variation in productivity in NZ can be explained by changes in profit and the mix of our industrial sectors. As we do more health, care, and services, and more of our profits are sent offshore to facebook, google, etc, the lower our productivity will get.
Yeah we have morons in charge - they spend to much time talking to each other in their shiny Wellington tower and screwing the country over -clueless if I am being polite
Orr should have been sacked by now as his failures are clear and who ever is allowing the current level of immigration to continue should be out on the street as well
While I agree on Orr (And thank you above for the reply JFoe), the take I get is that it isn't just government, however more so those at the helm of many of the companies that have deferred upgrades and maintenance in order to bolster profit for shareholders. Can we blame the govt if they are a majority shareholder in the companies in question? Maybe, as there is the argument of the level of influence they have demanding never-ending profits vs taking the hit for the longevity of the infrastructure managed by said companies. Clearly it is all unravelling, along with PDK's notion that the resources to build, maintain and upgrade infrastructure coming at increasing cost with less resources to draw from/harder to extract.
I think a lot of this is wrong, actually. GDP added by an activity is not just the profit - it's also the employee earnings and the investment in capital. The investment will sometimes appear under a different industry (e.g.investment in building electricity infrastructure is recorded under construction, not electricity). I do think there are lots of problems with looking at industry level productivity for reasons similar to what you describe - especially when it comes to "productivity" appearing under FIRE industries when they are effectively just capturing more of the profit from actual productive industries - but I don't think what you're saying is really true at a whole economy level.
I have looked through the detail on every industry's GDP / productivity (it was my job for a while). Critically, the GDP used for calculating productivity is GDP(P). This doesn't include employee earnings. It is the produced output of the industry - a simple calculation based on total sales minus intermediate costs (non-staff costs basically). To get labour productivity you divide GDP(P) by hours worked.
So, assuming labour hours remain static, when profits fall, GDP reduces, and so does measured productivity.
And in importing those hundreds of thousands, we're also displacing locally trained skilled workers by creating a deficit in housing and other basics creating a downward spiral on economic productivity.
Low-value businesses flourish at the expense of high-value ones as they all scramble for limited resources, further dampening productivity.
Looking at actual productivity stats from Infometrics, NZ's productivity fell sharply in 2020/21 and grew sharply in 2021/22, but on a net basis settled around the decade-long average of ~1% growth.
Can't find the source article, but Brad Olsen indicated that the increase could be put down to the loss of international tourism in NZ. Accommodation and food services has the lowest sector productivity and job & earning losses in this sector actually may have pulled up the overall economic productivity in the country.
Shortly after, the government pumped billions to "rescue and resuscitate" the poster-child sector, even though growth in this industry makes us poorer as a country.
Do you not notice the rather high correlation between the higher OCR and improvements in productivity from your plot. There is no evidence of causation but if you though in some lag it's pretty rock solid.
Higher rates require business to be more productive to make profit at the cost of less profitable business practices driven from borrowing less viable. Your stopping you analysis too quickly at just the short term pain. When the housing market eventually crashes we will be forced though this anyway.
GDP isn't profit at the company level, it is revenue.
Our productivity problem is nothing to do with where the profits end up. We're simply not generating enough value per capita. That is probably due to underinvestment in capital, regulation, education and over reliance on importing unskilled labour.
Jfoe, I always enjoy your analysis and supporting links that help form your view. Can I ask you what your thoughts are on the Insurance side? It seems like risk repricing through the NZ market is not something that will cause premiums to go anywhere other than up in future.
Yes, insurance companies protect profitability at all costs (and have the market power to do so), The big rock they are dealing with is global reinsurance costs, and in particular the climate change related costs that global reinsurers are aggressively pricing in now.
Bang on the button (that the reinsurers are driving the price hikes while retail insurers are adding their % which will increase their profits).
What may be less well understood by Government, the RBNZ and NZ Inc is that the market response - especially with cash being tight across the board - will be to under-insure, or not insure at all. This creates significant financial stability risk across all of NZ.
Imagine if we had another Christchurch earthquake and many people were uninsured / under-insured. Who would have to support the rebuilds? That's right - the tax payer. (And they'd be fewer of them as many will simply leave NZ altogether.)
History is littered with black swan events like earthquakes, pandemics, etc. And when they hit a country / economy during tough economic times - like the very long recessionary period NZ has been in - the effects are catastrophic. So much so that first world countries sink to second or even third world countries and stay that way for generations as they attempt to claw their way back.
Someone needs to tell the RBNZ that financial stability (one of their core remits) will evaporate if we get hit by a disaster and there are high levels of under-insurance. (Yes. I am saying they are failing. Again.)
Re-insurers historically are very reactive to recent events. "Better recover they losses we just incurred...." Their models will tell them that the events of last year are unlikely to repeat themselves regularly. I believe the current large premium increases are a step change and increases over the next few years will likely return to more typical levels.
Plenty wrong here - the consumption volumes data very clearly shows demand was more responsible for inflation than supply. (although I do agree with your judgment that wages were not a factor initially - they then responded via a combination of labour shortages and demand for higher wages to match inflation).
Households being net beneficiaries of higher rates - sure, but the benefit flows to savers and comes with encouragement to save more, so it's less likely to add to demand. When the benefit comes to borrowers, they spend much more of it - and at the same time you disincentivise saving. I can say from personal experience that I am actually making more effort to top up term deposits now that they aren't losing money.
But "hugely inequitable" is utter crap - savers still receive at best near-zero real return after tax and inflation. For much of the last few years interest rates have been negative in real terms - a huge handout from savers to borrowers - we are not even starting to redress that balance. Remember, borrowers are usually wealthy, which is why a long period of monetary settings favouring borrowers led to massively increased wealth inequality, especially between the bottom third and the rest. Why on earth do you want to go back to that? How is it not obvious that the current settings are more fair and more stable for society?
I do agree that businesses are cutting size rather than margins. Not entirely a bad thing - high consumption funded by borrowing was never a good thing for our collective future, and I'll be happy to see it shrink - but it's a shame we don't have a government that will divert the freed up resources to more useful endeavours.
The consumption volumes show that consumption bounced back after covid lockdowns and stayed elevated as more people got work. But, you are assuming without evidence that extra consumption was the major driver of increased prices (as opposed to, say, the cost of $100bn worth of imports going up 25% in a single year!) Indeed, consumption was back on pre-covid trend by the end of 2022 and has fallen since (new retail survey dataset is out today). Sophisticated decomposition of what drove inflation across the world has found very little evidence that demand was a dominant factor. It's all supply, supply, profiteering, supply.
We clearly differ politically, but the idea that giving people money in proportion to how much of it they have managed to stash away is equitable is alien to me. I agree on your propensity to spend, although anecdotally my favourite restaurants are increasingly full of people my age these days.
At least we agree on your final paragraph!
So in summary, there's something fundamentally faulty in our economic and monetary thinking, in our wealth creation and credit creation model, in our maximum financial gains rather than optimal holistic benefits, in our short term thinking vs foresight and long term vision.
Int rates wont come down until the fat man sings. Unfortunately it was only hosking exercising his vocal cords this morning. Orr has no viable answer to many of the questions and doesnt know any lever bar one. He is clueless on how to control profiteering aussie banks, he is all TALK about competition and open banking. Makes dumb statements like "they have highest margins for least risk" and "I hope what they're saying is true."
It's very rare that I find myself in agreement with Hosking but today was one such occasion. Orr has zero answer as to how the OCR has any impact whatsoever on councils or insurance companies. Is he suggesting people simply cancel their insurance and default on rates to send a message?
It would be in everyone's interest if the Commerce Commission grew a pair and started to force banks, wholesalers and supermarkets to compete
https://www.thepost.co.nz/nz-news/350284911/foodstuffs-wants-merge-its-…
Genuine question, why is this the only lever we are using? If the goal is to reduce spending to bring down cost, the only wiggle room there is business profit. Why not attack that more directly? Insurance companies will not provide insurance at a loss no matter how broke you make consumers etc. That is also a far less damaging area to impact compared with making someone unemployed which completely destroys their financial situation.
It seems like a very indirect method of attacking inflation to simply raise the cost of borrowing. Considering that is inflationary in itself.
Why not raise taxes as well, or instead? That can be very specifically targeted. It would also enable impacting people who are largely unimpacted by interest rate rises.
It worked well when the majority of baby boomers had mortgages and most didn't fix the interest rates given they were dropping in the 90's, therefore the impact on spending was more immediate, and impacted a greater share of the population then. Now it impacts less people in the same way, and due to other internal and external factors, when business costs go up (e/g costs of debt via OCR hikes), they simply pass it to the consumer and eat even more of peoples income. Costs need to drop to meet the market but I feel aren't doing so at an appropriate rate.
Agreed but business owners are the proverbial meat in the sandwich. They are being pushed with rising costs (wages, rates, etc etc), and customers wanting to pay less or save money via cutting costs and service. Delivering both will crush margin within the business, and in a lot of cases lead to bankruptcy. The real crux of change needed here is either a significant drop in the basic standard of living, aka ten people per house instead of the average three, or, a significant drop in the costs of basic needs aka food, rent, property. That manifests as no more wage increases, and the market then adjusting to service the lower velocity of money moving around the market.
The single greatest unifying costs if the cost of shelter, rent and mortgage. It is element most out of balance. So...protect endless bank debt/profit, or look after the tax paying citizen of NZ. What to do....
RBNZ only has one lever they can adjust. Privatisation of certain verticals such as insurance ultimately causes costs to increase for everybody. Something so important or fundamental as insurance, banking, or petrol shouldn't be in the hands of private operators in a country as small as New Zealand since business aren't interested in coming here to compete in such a small market (compared to global standards). Either that or a handful of operators ends up fleecing the country since barrier to entry is too high (hello supermarkets/banks) and as a result share of profit would reduce.
Either that or regulation must be very stringent so to prevent operators from monopolising and excess profit is brought back into society.
We would be better off becoming a state of another country or a very socialist one considering our geographic challenges and what our country is famous for - Tourism and agriculture.
I was absolutely stunned when I read this. I.e. the RBNZ's MPC thought they might need raise interest rates further because productivity had fallen.
Let me be crystal clear here ...
This is the thinking of people who clearly have NO idea how investment (the spending of one's money to increase production so that it provides a return) actually works in the real world.
I mean - and this really can't be stated forcefully enough - the RBNZ has almost single handedly created a recessionary environment for 4 out of the last 5 quarters (actually longer) with business profits down and people out of work, while raising the cost of capital, and creating an extremely uncertain environment for investment of any kind.
Seriously - what did the RBNZ's MPC expect to happen in such an environment? That businesses would rush out and invest in new plant, machinery and training, and/or start a new businesses or two ... while they could just throw the money into a term deposit and get a nice safe 6% or more?
I've had enough. We need a new MPC and a RB Governor that actually knows what must be done!
Sorry Adrian but insurance premiums are mainly defined by underwriting costs. These are based on risk Accessments, and the fact that so many Auckland suburbs flooded caused so much loss (vehicle etc)
Higher rates will not stop insurance premiums going up... its a take it or leave it deal based on risk, shop around but all rates are going up...
re Council rates, sorry mate you have NO ABILITY to control rates bills........ with interest rate rises, maybe you can control those who have no money to pay these bills.... ie defaults.
you have lost control of this,,, end of game.
I suspect council rates will start to plateau after local elections.
Likely the next round of elections will be fought 100% on coming rates increases and contenders promises to stop the council spending somehow.. we will be headed for a period of austerity for sure.
This will be a very unpopular opinion, since statistically most people are employees, and are on here surfing while they should be working (like me), but the reason productivity is rubbish is almost entirely the fault of our self indulgent institutions and their kling-ons.
Whole generations of people now believe they are entitled to the highest possible standard of living as a right, and it is the economy, the government, and the employer's job to provide for their self indulgent lifestyles, with no expection of them applying themselves. Borrowing for consumption, expecting speculation and publicity to replace the requirements of work and application to get results has led us to a massive imbalance, leading to the biggest bunch of woke bullshit the world has ever seen, and NZ has one of the worst cases in the pack.
So yeh, no wonder productivity is low.
I've had a general observation, that any comment or post including the word 'woke' is largely nonsense. While your grammar and spelling are far above the average 'woke' post, the point you're making is nonsensical.
Productivity per capita has risen steadily for decades. Compensation on the other hand has dropped. So people are producing more, for less, with the difference going to a shrinking % of the population. Effectively the exact opposite of your statement.
I'm not even sure how to address 'woke', apart from it being part of your active vocabulary is a good sign you should reconsider the media you're taking in.
Productivity per capita has risen steadily for decades. Compensation on the other hand has dropped. So people are producing more, for less, with the difference going to a shrinking % of the population.
stefanblaise, Number8 is correct.
Might I suggest you look further into what they say and spend some time checking Number8's facts. For facts they are.
Fair enough, I hope you apply the same skepticism to whatever has convinced you of the 'woke' boogeyman enough to insert it into your thoughts around economics.
This is an extremely well understood and documented phenomena, because it has been going on consistently for decades as I mentioned.
https://data.oecd.org/lprdty/labour-productivity-forecast.htm#indicator…
If you select Labour productivity forecast you can go back as far as 1990 which gives a very obvious trend upwards.
https://www.stats.govt.nz/information-releases/productivity-statistics-…
https://rep.infometrics.co.nz/new-zealand/productivity/growth
But hey, don't let the facts get in the way of your feelings.
I seriously doubt Mr. Orr's leadership of our central bank. While I am a strong supporter of central banks maintaining their freedom in driving monetary policies, Orr's judgment and performance during COVID period raise serious doubts on his professional conduct and skills. Labour government did what they wanted to do, but RBNZ is an equal culprit for the mess we are in today and it shouldn't go unpunished.
All true. But interestingly Labour and Orr played a blinder strategically.
Orr gets his contract renewed by labour.. who lose an election to a coalition desperate to be in power and change everything....
But. The coalition inherit the worst economic mess in decades and will be blamed for it all.. or will sit quietly and simply keep the ocr high and say it's to sort inflation.
By the next elections we see green roots.. but are sick of national and vote in labour and they and Orr carry on with their projects.
Sweet.
Kiernan said the lower potential output estimate had resulted in another increase in the estimated neutral OCR, by 25 basis points to 2.75%, but the RBNZ was still being too hawkish.
“In our view, given the clear stresses the economy is currently under from high interest rates and rising unemployment, and that monetary policy is clearly constraining demand, such an extended wait to start cutting interest rates is far too long,” he said.
Well said indeed, Gareth. (Note: NOT a bank economist.)
I know everyone on this forum has a hard on for the real estate market crashing and views anyone with a mortgage as a fool but the impact of this decision is going to reach much more than just housing. In realtime inflation has all but stalled, many sectors are facing cash crunches and unemployment is rising sharply. Once again Orr has overshot and it is the everyday kiwi that will pay for it.
Mortgage holders are not fools. However, those stacking debt on debt like drunken sailors thinking it was an endless one way bet at the expense of everyone else in society are. Leverage is bidirectional as they are finding out now, with more unwinding to come.
Interest only endless high dti leverage is an economic poison as should be eradicated.
There you go again ... Thinking everyone is suffering equally.
They're not.
The younger and with debt are getting stuffed. The older with term deposits and/or assets they can sell ... are raking it in and/or not suffering at all.
And who was "stacking debt on debt like drunken sailors"? Was it young buying their first homes? No. Statistically it was the older buying 2nd, 3rd, etc. rentals.
The OCR doesn't work the way far too many in NZ think it does. (Kiwis are either not that bright or willfully ignorant.)
I don't want them to drop or crash. Although in parts of NZ they did crash. I think people are just sick of NZs economy essentially being a housing market, and many people are locked out of good secure warm houses and are often forced to rent houses that require a lot more energy to heat etc. Tat all that helps with peoples decision to leave NZ.
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