‘Worse than the most pessimistic predictions’: Economists warn of more rate hikes

Economists and experts are deeply concerned after the latest figures showed inflation has barely budged.

New Zealand’s consumer price index (CPI) increased 7.2 percent annually in the September 2022 quarter, down slightly from 7.3 in the June quarter.

While inflation did soften ever so slightly from its June peak it is still significantly higher than economists and analysts predicted. The major banks predicted it to fall to around 6.5 percent.

The lack of change was driven mostly by housing and household utilities due to rising prices for construction, rentals and local authority rates.

Prices for building a new house increased 17 percent in the September quarter compared with the same quarter last year.

Rental prices also had an annual increase of 4.6 percent, while local authority rates increased 7.3 percent annually.

The next largest contributor to the annual increase was higher prices for petrol and diesel.

Petrol prices increased 19 percent in the year to the September 2022 quarter while diesel prices increased 72 percent over the same period.

Quarterly inflation was at 2.2 percent in the September quarter compared with June, mainly influenced by food, housing and household utilities.

Non-tradable inflation was 6.6 percent in the year to September 2022 quarter, the highest since the series began in June 2000.

Non-tradable inflation measures goods and services that do not face foreign competition. It is an indicator of domestic demand and supply conditions. However, the input materials of these goods and services can be influenced by foreign competition.

The tradable inflation rate, which measures goods and services that are influenced by foreign markets, was at 8.1 percent compared with an annual rise of 8.7 percent in the June 2022 quarter.

Economists

Stubbornly high inflation is causing concern among economists and politicians. Informetrics principal economist Brad Olsen said the figures are “alarming”.

“The ingrained and intense level of inflation are alarming and will force interest rates to rise higher and faster to combat pervasive pricing pressures across the domestic economy.

“Despite the relief from slightly lower fuel prices, inflation remains broad-based, with key household staples driving prices for Kiwi households higher.”

Olsen said there’s now “no question” the Official Cash Rate (OCR) will continue to rise as the Reserve Bank of New Zealand battles to get inflation under control.

“We now think a 75 basis point increase to the OCR is necessary to get ahead of (or more realistically try and catch up to) inflation,” he added.

It was a view shared by independent economist Cameron Bagrie who told Newshub the latest figures were “a bad set of numbers for the economy”.

“It flags a deeper economic adjustment and a hit to growth is needed to get the inflationary thief back in jail,” he said.

The Council of Trade Unions is also expressing concern about inflation with its economist Craig Renney calling for more to be done to “protect low and middle-income families”.

“Low- and middle-income families will be facing some tough choices as a consequence of this ongoing inflation. Government should be focussing on helping to protect these families during these challenging times.”

Renney said the need to continue raising interest rates increases the risk of job losses and means households will be forking out more for their mortgage.

“Together with a darkening position on the global economy, it indicates more economic turbulence for the New Zealand economy ahead.

“We should be planning now for how we respond to that challenge. If more workers are going to lose their jobs then we should protect their incomes as best we can.