CPI & Inflation Data Update: What’s Next For New Zealand? Ft. Kiwibank Chief Economist Jarrod Kerr | Episode 229
Oct 17, 2024
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Kiwibank Chief Economist Jarrod Kerr shares his expertise on New Zealand's economic future, spotlighting the impact of recent inflation data and interest rate cuts. He discusses shifts in consumer confidence, the complex dynamics of inflation, and its influence on housing markets. Jarrod also highlights the pressing challenges of housing affordability and the current economic landscape, while projecting a positive outlook for growth and recovery leading up to 2025. A must-listen for economic insights!
New Zealand's economy is projected to recover with a 2% growth rate next year, despite currently being in a technical recession.
Recent CPI data shows inflation has dropped to 2.2%, allowing interest rate cuts that may boost market confidence and recovery.
Deep dives
Economic Recovery Outlook
The current economic forecast suggests a potential recovery, projecting a 2% growth rate over the next year, despite the economy being in a technical recession at present. There is optimism surrounding declining unemployment rates, which may foster a more balanced economic environment. Inflation has stabilized, allowing the central bank to aim for neutral interest rates, setting a solid foundation for growth into 2026 and beyond. This perspective hinges on continued positive trends in the economy, indicating that the worst may soon be behind us.
Impact of CPI and Interest Rate Cuts
Recent Consumer Price Index (CPI) data indicates a significant drop in inflation to 2.2%, a decrease from previous high levels, enabling the Reserve Bank to initiate 50 basis point interest rate cuts. This move has garnered attention as it reflects deeper economic conditions, with mixed reactions from businesses regarding sustainable growth. The expectation is that as inflation continues to decrease, interest rates may follow suit, promoting a quicker recovery for the economy. Analysts note that expected cuts could push the cash rate down to more neutral territory, which may invigorate market confidence.
Tradable vs. Non-Tradable Inflation
Inflation data reveals a stark difference between tradable and non-tradable categories, with tradable goods showing a decline while non-tradables remain high. The significant drop in prices for imported goods is attributed to a normalizing global inflation environment, while domestic pressures, including rising council rates and insurance premiums, contribute to stickier non-tradable inflation. This divergence indicates the need for careful monitoring, as the persistence of high non-tradable inflation poses a risk if not addressed adequately. Forecasts suggest that non-tradable inflation may eventually stabilize, but vigilance from the Reserve Bank is crucial.
Housing Market Predictions
The housing market is anticipated to experience more normalized growth dynamics, moving away from extreme price fluctuations tied to interest rate changes. Analysts assert that the restrictive cash rates currently in place will temper demand, easing the market away from the volatile conditions seen in the past. Trends indicate that as interest rates gradually decline, investor confidence may return, re-engaging sidelined buyers and potentially leading to a balanced housing market. However, persistent housing shortages present ongoing risks, indicating that significant structural changes are required to maintain affordability and adequate supply in the long term.
We’re joined once again by Kiwibank Chief Economist Jarrod Kerr to discuss the latest CPI and inflation data, offering insights into how these shifts are shaping New Zealand's economic future.
The content in this podcast is the opinion of the hosts. It should not be treated as financial advice. It is important to take into consideration your own personal situation and goals before making any financial decisions.
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