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Speaker 1: Right. Inflation appears to be easing, although some costs are

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Speaker 1: continuing to search. The latest figures from Stats New Zealand

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Speaker 1: show petrol is fourteen point nine percent cheaper than a

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Speaker 1: year ago, and food prices rose one point two percent.

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Speaker 1: Fruit and veggie is eight point three percent cheaper, but

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Speaker 1: olive oil is fifty eight percent price here man is it?

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Speaker 2: Ever?

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Speaker 1: While butter, chocolate, biscuits and alcohol have also been getting dearer,

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Speaker 1: asb Senior economist Mark Smith joins me, Now, good evening, Marke,

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Speaker 1: how are you doing?

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Speaker 2: Good evening? Good? Thanks?

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Speaker 1: How are you a bit of a mixed bag? There

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Speaker 1: isn't it? Some highs and loves? Yes? Are we seeing

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Speaker 1: though signs inflation is getting under control.

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Speaker 2: Yes, yeah, there are welcome signs of that happening. But

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Speaker 2: as you said, there's quite a lot of variation. But really,

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Speaker 2: what we've done says the general tendency for price increases

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Speaker 2: is slowing and that is really encouraging to households have

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Speaker 2: really been under the kosh over the last few years.

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Speaker 1: So what are still the biggest drivers of inflation?

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Speaker 2: Well, really, when you look at it, you've got the

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Speaker 2: external environment. So as you said, petrol prices fell in

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Speaker 2: the quarter, and that's likely to be a major contributor

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Speaker 2: towards falling external prices that we expect for the year,

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Speaker 2: so down around one and a half percent. But on

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Speaker 2: the other side, the domestic component of inflation remains elevated

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Speaker 2: at around five percent. Now, looking at those certain areas,

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Speaker 2: there are some welcome signs things like construction cost inflation

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Speaker 2: should sharply fall in the quarter, but unfortunately there are

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Speaker 2: a lot of cost increases. Things like local authority rates

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Speaker 2: and insurance will keep that domestic inflation rate high.

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Speaker 1: Will they oc to help ease any of this? I'm

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Speaker 1: sort of thinking about rents and things.

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Speaker 2: Really, the OCR is responding to the inflation rate rather

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Speaker 2: than the other way around. But what we are seeing

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Speaker 2: now is as the economy is calling, inflationary pressures are

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Speaker 2: starting the call, and as a result, the OCR is

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Speaker 2: moving lower. Now at four point seventy five percent, it's

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Speaker 2: still pretty much on the tighter side of neutral, which

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Speaker 2: is around three to four percent, but encouragingly, it's starting

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Speaker 2: to move lower.

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Speaker 1: Okay, what do you think this means for the CPI

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Speaker 1: next Wednesday?

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Speaker 2: We expect a two point two percent annual increase, but

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Speaker 2: as you said there's quale out of variation, but we

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Speaker 2: do expect signs there to really concern that the central

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Speaker 2: tendencim price increases is falling, core inflation is falling, and

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Speaker 2: as a result, the official cash rate needs to move

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Speaker 2: lower from here.

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Speaker 1: Would you be happy with that two point two percent increase?

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Speaker 1: What would you like to see?

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Speaker 2: Again? Again, the lower the better. It would depend on

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Speaker 2: the composition, but really what we're seeing, it's the reserve

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Speaker 2: bank if we'ked hard. But as a result, inflation is

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Speaker 2: certainly calling. So as a result, we expect at least

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Speaker 2: a fifty basis point cup in the official cash rate

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Speaker 2: in November.

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Speaker 1: Yeah, we sort of we're just sort of we're edging

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Speaker 1: along and now we're taking quite big leaps with the

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Speaker 1: ocr aren't we.

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Speaker 2: You think that will continue, I think until we get

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Speaker 2: to sort of more neutral levels. So at the moment,

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Speaker 2: the OCA is at four point seventy five percent if

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Speaker 2: you like the goldilock zones, you know, three to four percent,

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Speaker 2: So they need to move it pretty quickly now with

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Speaker 2: evidence inflation is pretty much you know, it's been beaten.

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Speaker 2: The inflation beef has been beaten. Never say never, but

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Speaker 2: signs is certainly encouraging. So as a result, they need

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Speaker 2: to really take the foot off the brake pedal and

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Speaker 2: move into neutral. Unfortunately, if the economy really weakens, they

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Speaker 2: might need to actually put the foot on the accelerator,

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Speaker 2: and that means the social cash rate lower than three percent.

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Speaker 1: Okay, oh look good to talk to you. Thank you

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Speaker 1: very much Mark for talking us through that. That was

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Speaker 1: ASP senior economist. For more from hither Duplassy, Allen Drive,

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Speaker 1: listen live to news talks it'd be from four pm weekdays,

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