PHOTO: Interest Rates
The official cash rate – at a record low since the pandemic hit – will likely start rising again before the end of the year, a major bank is predicting.
ASB, previously picking the Reserve Bank (RBNZ) to move in May next year, now thinks the official cash rate (OCR) will start rising in November. The trigger was the Tuesday morning release of the NZ Institute of Economic Research’s latest Quarterly Survey of Business Opinion, which reported the “most acute… scarcity of skilled and unskilled labour” in the survey’s 45-year history. ASB called its findings “extraordinarily strong”, showing “inflation risks getting too high for comfort”.
When labour is scarce wages go up, driving inflation (as measured in the consumer price index, or CPI). Inflation is also being pushed upwards by supply chain disruptions thanks to COVID-19, and high demand in the construction sector, with consents at an all-time high.
“The heady mix of strong household income growth, underpinned by stronger wage inflation, coupled with generalised and broad-based CPI price increases is a wage-inflation spiral waiting to happen,” ASB wrote in its response to the survey.
“Inflation expectations have started to creep higher and will likely continue to lift over the coming year.”
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