1 00:00:00,200 --> 00:00:03,720 Speaker 1: Inflation numbers are out today. Forecasts are predicting a quarterly 2 00:00:03,800 --> 00:00:06,520 Speaker 1: rise of between point seven point eight percent, taking us 3 00:00:06,559 --> 00:00:09,119 Speaker 1: to just over two percent. And you know what that means. 4 00:00:09,160 --> 00:00:12,080 Speaker 1: That puts us back in the box the Reserve Bank's 5 00:00:12,160 --> 00:00:14,520 Speaker 1: target range of one to three percent for the first 6 00:00:14,520 --> 00:00:17,680 Speaker 1: time since quarter one of twenty twenty one. Kelly Echold 7 00:00:17,840 --> 00:00:22,480 Speaker 1: is Westpax chief economists. What's still going up rates, obviously 8 00:00:22,520 --> 00:00:25,960 Speaker 1: going up insurance? How much are they contributing. 9 00:00:27,200 --> 00:00:31,800 Speaker 2: Well, it's essentially a significant part of the total CPI, 10 00:00:32,560 --> 00:00:35,040 Speaker 2: So like there's a real split there between what's going 11 00:00:35,080 --> 00:00:39,520 Speaker 2: on with pricing right now. Today. We expect, for example, 12 00:00:39,640 --> 00:00:43,080 Speaker 2: that the forty odd percent of the CPI, which is 13 00:00:43,120 --> 00:00:49,199 Speaker 2: all important things like petrol or kind of like electronic goods, 14 00:00:49,560 --> 00:00:52,280 Speaker 2: those things will have fallen in price by one and 15 00:00:52,280 --> 00:00:54,920 Speaker 2: a half percent of the last year. But at the 16 00:00:54,960 --> 00:00:57,959 Speaker 2: same time, all the other things like rates, insurance, all 17 00:00:58,000 --> 00:01:01,560 Speaker 2: the services that you buy those things are expected to 18 00:01:02,360 --> 00:01:06,880 Speaker 2: have increased by five percent basically for the year. So 19 00:01:07,000 --> 00:01:09,559 Speaker 2: that kind of average of two point two two point 20 00:01:09,680 --> 00:01:13,240 Speaker 2: three is really reflecting some pretty divergent trends. 21 00:01:13,520 --> 00:01:18,080 Speaker 1: Yeah, when we look at the you know, the big 22 00:01:18,120 --> 00:01:21,399 Speaker 1: reason for the inflation coming down is globally right. Inflation 23 00:01:21,560 --> 00:01:24,759 Speaker 1: has been coming down, the oil etcetera has been coming off, 24 00:01:25,000 --> 00:01:27,720 Speaker 1: and that has flowed through to us because we've had 25 00:01:27,720 --> 00:01:31,240 Speaker 1: the non tradeables have been so sticky. That basically means 26 00:01:31,240 --> 00:01:34,360 Speaker 1: the reserve banks had to whip us extra hard, doesn't 27 00:01:34,360 --> 00:01:37,119 Speaker 1: it to do an extra hard job when it comes 28 00:01:37,160 --> 00:01:38,319 Speaker 1: to interest rates? 29 00:01:39,600 --> 00:01:43,200 Speaker 2: Yeah, well that is sort of right. The bit of 30 00:01:43,240 --> 00:01:46,520 Speaker 2: the CPI at the Reserve Bank really mainly controls as 31 00:01:46,560 --> 00:01:50,560 Speaker 2: that non tradeable bit because all of those services prices 32 00:01:50,680 --> 00:01:54,760 Speaker 2: reflect the balance of supply and demand within New Zealand, 33 00:01:55,320 --> 00:01:58,480 Speaker 2: whereas with respect to all of those import prices, their 34 00:01:58,520 --> 00:02:01,680 Speaker 2: prices are generally set off sure, and we just get 35 00:02:01,680 --> 00:02:05,160 Speaker 2: what we get. So, you know, that's why the Reserve 36 00:02:05,200 --> 00:02:08,360 Speaker 2: Bank has generally been pretty cautious here and continues to 37 00:02:08,360 --> 00:02:12,079 Speaker 2: be a bit cautious because you know, with domestic sort 38 00:02:12,120 --> 00:02:16,080 Speaker 2: of inflation sitting closer to five percent is opposed to 39 00:02:16,120 --> 00:02:19,120 Speaker 2: three percent, it's actually it's still quite a lot higher 40 00:02:19,200 --> 00:02:20,120 Speaker 2: than it really needs to be. 41 00:02:20,560 --> 00:02:24,400 Speaker 1: Can they go back to back double whammys in terms 42 00:02:24,480 --> 00:02:28,600 Speaker 1: of the cuts to the OCR if the inflation is 43 00:02:28,639 --> 00:02:30,160 Speaker 1: back in the you know, the genies back in the 44 00:02:30,160 --> 00:02:31,160 Speaker 1: bottle today. 45 00:02:32,040 --> 00:02:35,680 Speaker 2: Well they can. I mean, we're actually forecasting that they 46 00:02:35,720 --> 00:02:38,400 Speaker 2: will do another fifty basis point cut at their monetary 47 00:02:38,440 --> 00:02:42,320 Speaker 2: policy statement next month. And the rationale for that seems 48 00:02:42,360 --> 00:02:45,919 Speaker 2: to be that even after having cut interest rates by 49 00:02:45,960 --> 00:02:49,440 Speaker 2: seventy five basis points will read this year, it's still 50 00:02:49,560 --> 00:02:52,160 Speaker 2: quite a high rate compared to where they think it's 51 00:02:52,200 --> 00:02:55,320 Speaker 2: going to average out over time. So given now we've 52 00:02:55,360 --> 00:02:59,280 Speaker 2: got aggregate inflation getting pretty close to two percent, there 53 00:02:59,320 --> 00:03:02,720 Speaker 2: isn't really that stronger case for keeping interest rates quite 54 00:03:02,760 --> 00:03:05,680 Speaker 2: that high. They still think that interest rates are going 55 00:03:05,720 --> 00:03:07,880 Speaker 2: to be have to be on the higher end of 56 00:03:09,200 --> 00:03:12,639 Speaker 2: average basically to bring that non tradables inflation down over 57 00:03:12,680 --> 00:03:16,320 Speaker 2: to time, But there's just no need for as tighter 58 00:03:16,400 --> 00:03:18,880 Speaker 2: conditions as we've had to endure for most of the 59 00:03:18,960 --> 00:03:19,799 Speaker 2: last couple of years. 60 00:03:20,040 --> 00:03:21,640 Speaker 1: I'll take that. Kelly, thank you very much for your 61 00:03:21,680 --> 00:03:26,240 Speaker 1: time this morning. Kelly Echol, Westpac Chief Economist. The Infati 62 00:03:26,400 --> 00:03:30,800 Speaker 1: numbers out today for more from early edition with Ryan Bridge. 63 00:03:30,880 --> 00:03:34,320 Speaker 2: Listen live to news Talks there'd be from five am weekdays, 64 00:03:34,600 --> 00:03:36,640 Speaker 2: or follow the podcast on iHeartRadio.