Economists expect no rate cut this week
It's a similar story, though in reverse, for August, where the consensus view among economists is for a further 25 point cut, though after that opinions diverge.
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NZ Herald
17 hours ago
- NZ Herald
Inflation is back and that's a problem for the Prime Minister
Rising prices for vegetables and fruit are adding to the pain we're already suffering for butter, cheese and beef prices. The Stats NZ release came with an avalanche of horrible numbers that confirmed what we're already feeling at the supermarket checkout. Milk prices were up 14.3% annually, butter up 46.5% over the same timeframe and cheese up 30%. Beef mince was up 21% and fruit and vegetables, which had been pretty good, rose 5% just in June. Obviously, there are seasonal factors, but that's a big spike and recent flooding in key growing regions means things will probably get worse before they get better. While overall inflation is considerably lower, grocery bills represent an outsize proportion of weekly spending for the poorest Kiwis. Food prices are also pushing up the overall inflation rate and forcing the Reserve Bank to slow the pace at which it cuts interest rates. That, in turn, slows the pace of economic recovery. Tomorrow we'll get the full inflation figures for the second quarter. Economists are picking annual inflation to land at 2.8% or 2.9% (up from 2.5%). From there, they expect it to keep rising to more than 3% in the third quarter, above the Reserve Bank's mandated target range. That all looks bad, but it isn't necessarily disastrous. Inflation should start falling again towards the end of the year, economists say. In the politically sedate world of economics, all the talk is about tradeable inflation – the price of volatile, internationally priced goods. Non-tradeable inflation, the stuff that is generated by wages and service costs in the core of the domestic economy, continues to fall. It's hardly an upside. Ongoing recessionary conditions are expected to ensure that non-tradeable inflation keeps falling. So there is a consensus among economists that the current inflationary conditions won't derail the economic recovery – they'll just delay it. Politically, it still hurts. Remember 'survive to 25″! We spent last year hanging on for the long-promised economic recovery. Now we've got economists forecasting things will come right in 2026. Looking at all the moving parts, I still remain optimistic that it will. An agricultural export boom and low interest rates must eventually generate some growth in the New Zealand economy – it's just not that complicated. But the waiting will be wearing thin for voters. Next year it's the election already, which is cutting things fine for a Government that has staked its reputation on being all about economic growth. As I said at the start, I don't think this is the Government's fault. But details like that don't matter much where the economy is concerned. Sometimes governments do cause or exacerbate inflation with overly stimulatory fiscal policy. That isn't the case this time. The Government can legitimately be attacked from the left for making the downturn worse by running a tight fiscal policy. The counter-argument (which lands well with a lot of Kiwis) is that Crown debt is out of control and retrenching was the right thing to do in the long run. Regardless of where you sit on that debate, it doesn't leave any reason to blame the Government for this latest inflationary spike. Still, the idea that governments are responsible for the cost of living is almost unshakeable in the minds of a large chunk of the voting public. The problem for Christopher Luxon and Nicola Willis is exacerbated by the fact they publicly took credit for bringing inflation down. 'This Government has delivered on its promise to Kiwis – our careful and deliberate plan to get on top of inflation is working,' Willis said in an August 2024 press release celebrating the latest RBNZ rate cut. Also, the Nats weren't shy of heaping the blame on Labour when inflation soared in 2022, even though that was initially driven by international price spikes. Labour complained at the time but is now happy to run the same attacks. Labour leader Chris Hipkins continues to draw attention on social media to the price of butter, implying Government policy is to blame and ignoring the fact that dairy prices are currently the only thing saving the nation's economic bacon. Despite my best efforts to explain the ins and outs of global commodity pricing, my inbox confirms the public remains highly engaged about the price of butter. Did I say engaged? Sorry, I meant enraged. I still don't get the obsession with butter. How much of the stuff do you actually have to use... put some Country Soft on your toast, it's fine. But I don't want to downplay the real economic pain that high food prices cause. I've personally found the rise in cheese and beef prices worse. With two teenage boys to feed, we get through a lot of cheese and bulk our pasta sauces and nacho toppings with plenty of ground beef. The notion that burgers or spag-bol are no longer affordable for many Kiwis is worrying. The commodity cycle will turn. International dairy and beef prices will eventually fall. But that will mask the real problem. It's not that food prices are too high, it's that wages are too low. In the perfect world, prices for our export commodities would stay high, but New Zealand's domestic economy would be creating more well-paid jobs and generating higher wages. A quick check on supermarket websites in Australia or Britain reveals that groceries (once you do currency conversions) aren't actually much cheaper there. They just earn more than us. The Prime Minister understands this and I believe him when he says his real policy goal is to boost productivity and wages. But that's going to take time. Meanwhile, immediate conditions continue to pull the rug out from under him. In the next few months, he faces a tough sales job to convince the public that the economy remains on the right track. Liam Dann is business editor-at-large for the New Zealand Herald. He is a senior writer and columnist, and also presents and produces videos and podcasts. He joined the Herald in 2003.
NZ Herald
2 days ago
- NZ Herald
Sir John Key urges 100-basis-point interest rate cut to boost NZ economy
While GDP grew at 0.8% in the first quarter of this year, there are fears some economists fear the second quarter could be negative. The manufacturing and services sectors both remain weak and on top of that, the property market is subdued. Adrian Orr, Reserve Bank Governor between March 2018 and March this year. Photo / Mark Mitchell Key maintained that Orr, who resigned as Reserve Bank Governor in June, mismanaged monetary policy over several years. 'Adrian fixated on getting interest rates to zero,' during the pandemic, Key said. 'Then he fixated on having them too high for too long. 'A lot of the indicators the Reserve Bank looks at are lagging indicators. They're quite late to the party,' Key said. The Reserve Bank held the Official Cash Rate (OCR) at 3.25% on July 9 but hinted heavily in commentary it expects to resume rate cuts later in the year. Acting Reserve Bank Governor Christian Hawkesby won't give an in-person briefing until the August 20 rates review. Financial markets are currently pricing in a 70% chance the OCR will be cut by 25 basis points in August, with a 50% chance of another cut by February 2026. Economists expect the OCR to bottom out at around 2.5% to 3%. 'The best I can do is rent a house?' Immigration Minister Erica Sanford recently said there had been more than 200 applicants to the 'golden visas' introduced in March, with 100 approved in principle so far and more than $1 billion on the table for investments. Applicants have to pledge at least $5 million for 'growth' investments such as start-ups or $10m for 'balanced' investments. Key said 10,000 investor immigrants would be better, but many were put off by the foreign buyer ban in housing. 'If I'm turning up with $100m, are you telling me the best I can do is rent a house?' Key said. 'We're a little country at the bottom of the world. And to make that work, you need foreign capital. You need smart foreigners to come here. You need positive population growth, migration,' Key said. The former PM did not see the foreign buyer ban, championed by NZ First, as keeping house prices down, at least in everyday suburbs. 'If I'm a billionaire in China, I'm not going to wake up and think I want to buy a $800,000 house in Pakuranga,' he said. 'They might buy a $50m property on the lakefront in Queenstown.' Key said agriculture was booming, but New Zealand was stuck in an 'L-shaped recovery, not a V-shaped recovery like after the GFC'. Key saw a turnaround in house prices, fuelled by lower rates, as the key to restoring confidence. 'If you want to get things going, the core of what's wrong is the housing market. The guts of what's wrong is that the housing market is going down, not up,' Key said. 'When house prices go up, everybody tells the pollsters, 'Oh that's terrible, my son or daughter can't buy house. I feel really bad. The technical term for that is 'bulls***',' Key said. 'What they really do, is they say to their wife – or the wife says to her husband, 'God, we paid $1m for this house and it's worth $1.7m now.' Quietly they go, 'Oh, we feel rich. And then they go and borrow a bit from the ANZ and they go on holiday and they upgrade their kitchen, they feel good about life. So when you have a negative wealth effect, they feel bad.' The median house price in Auckland has fallen 3.4% in a year to $990,000, according to figures released earlier this year by the Real Estate Institute. Excluding Auckland, the median price rose 1.7%. As he called for lower rates, Key acknowledged he had skin in the game. 'My son's a developer, so I'm talking a bit from personal experience,' Key said. 'I'm just telling you, we have got so much stuff on hold. We own land all over the show, and we're just sitting there not doing anything. 'He [Max Key] goes, 'Mate, my tradies' – he's got a bunch of these guys on the payroll in different places – 'none of them had Christmas holidays. There's no work'.' It's the tradies, stupid Many tradies were working three-day weeks, Key said. And for the party in power, that was a problem. 'To win an election, you have to win where the tradies live,' Key said. And that meant winning West Auckland. 'Don't worry about Remuera, don't worry about anywhere else,' Key said, tracing similar ground to political commentator Chris Trotter, who once described that archetypal middle New Zealand swing voter as 'Waitākere Man', a blue-collar conservative. 'I'm pretty close to Chris, and I talk to him quite a lot. But I don't try to be his father," former Prime Minister Sir John Key says of his relationship with current PM Christopher Luxon. Photo / Mark Mitchell 'Don't worry about Remuera, you've got to win Te Atatū, you have to win West Harbour, you have to win Waitākere.' Is the former PM passing on his thoughts to his successor? 'I'm pretty close to Chris, and I talk to him quite a lot. But I don't try to be his father. I don't try to tell him what to do,' Key said. Although he had concerns about the current state of the economy, he saw Christopher Luxon's Government ultimately prevailing as things picked up. Key related that he said to Luxon: 'You bet your house against my house: is the economy going to be stronger or weaker by the time of the election in 2026? We couldn't bet because we both thought stronger.' Chris Keall is an Auckland-based member of the Herald's business team. He joined the Herald in 2018 and is the technology editor and a senior business writer.
NZ Herald
4 days ago
- NZ Herald
Former Reserve Bank Governor Adrian Orr joins Cook Islands Super board
Former Reserve Bank Governor Adrian Orr has become a member of the Cook Islands National Superannuation Fund (CINSF) board. Photo / Mark Mitchell Listening to articles is free for open-access content—explore other articles or learn more about text-to-speech. Access to Herald Premium articles require a Premium subscription. Subscribe now to listen. Former Reserve Bank Governor Adrian Orr has become a member of the Cook Islands National Superannuation Fund (CINSF) board. Photo / Mark Mitchell By RNZ Former Reserve Bank Governor Adrian Orr has become a member of the Cook Islands National Superannuation Fund board. Orr has family links to the Cooks and has supported the fund previously with advice from its formation. Cook Islands National Superannuation Fund (CINSF) chairman Heinz Matysik said Orr was a welcome addition. 'Adrian brings a wealth of industry knowledge and leadership that will strengthen our board,' Matysik said. 'His appointment comes at a pivotal time, as the fund enters its next phase of growth and development.'
