1 00:00:00,040 --> 00:00:02,800 Speaker 1: December quarter inflation. We got that number today, popped outside 2 00:00:02,800 --> 00:00:06,240 Speaker 1: the band at three point one percent usual suspects rates, insurance, 3 00:00:06,360 --> 00:00:09,520 Speaker 1: rent driving it. We were three percent September, remember two 4 00:00:09,520 --> 00:00:12,440 Speaker 1: point seven percent for June. So wrong direction for now. 5 00:00:12,600 --> 00:00:15,240 Speaker 1: Sharon zolna AM's in chief economists with me tonight' Sharon, 6 00:00:15,240 --> 00:00:18,319 Speaker 1: good evening. Hello, thanks dam me on, good to have 7 00:00:18,400 --> 00:00:20,680 Speaker 1: you on. So this means that, well, it's more than 8 00:00:20,680 --> 00:00:22,240 Speaker 1: what the Reserve Bank thought it was going to be. 9 00:00:22,280 --> 00:00:23,599 Speaker 1: Does this mean we're not going to get a cut, 10 00:00:23,640 --> 00:00:25,320 Speaker 1: we'll get a hold next month? 11 00:00:26,640 --> 00:00:29,040 Speaker 2: Yeah? To be fair, I don't think anyone was expecting 12 00:00:29,280 --> 00:00:32,120 Speaker 2: as the Reserve Bank to do anything but hold. Since 13 00:00:32,159 --> 00:00:35,680 Speaker 2: there November montrepolicy statement, the activity data generally has been 14 00:00:35,720 --> 00:00:38,720 Speaker 2: coming out stronger than expected, and now we've got an 15 00:00:38,720 --> 00:00:41,800 Speaker 2: inflation starting point that's higher than they had expected as well. 16 00:00:42,440 --> 00:00:46,960 Speaker 2: But nonetheless they've only just finished cutting, So doing anything 17 00:00:47,920 --> 00:00:50,240 Speaker 2: other than nothing it would certainly be a huge spars 18 00:00:50,280 --> 00:00:50,800 Speaker 2: to everyone. 19 00:00:51,000 --> 00:00:55,480 Speaker 1: And then you're now bringing forward an increase to September. 20 00:00:56,680 --> 00:01:00,639 Speaker 2: Yes, So typically the OCR spends about a year at 21 00:01:00,640 --> 00:01:02,680 Speaker 2: the bottom or the top before it starts moving. Well. 22 00:01:02,800 --> 00:01:08,000 Speaker 2: Obviously every cycle is different, but essentially with that stronger 23 00:01:08,040 --> 00:01:10,920 Speaker 2: activity data and now the stronger inflation starting point as well. 24 00:01:10,920 --> 00:01:14,800 Speaker 2: You know, that's quite the combination, and so we now 25 00:01:14,840 --> 00:01:17,920 Speaker 2: think that rate hikes are likelier than not this year, 26 00:01:18,000 --> 00:01:20,920 Speaker 2: with obviously question marks around the timing. There are some 27 00:01:21,280 --> 00:01:25,480 Speaker 2: indicators suggesting that inflation is going to keep rising, in 28 00:01:25,520 --> 00:01:29,000 Speaker 2: which case rate hikes could come sooner. On the other hand, 29 00:01:29,600 --> 00:01:33,440 Speaker 2: descal headwinds for the economy. Rates and the exchange ratear 30 00:01:33,480 --> 00:01:35,640 Speaker 2: off their lows. Dairy prices have fallen quite a bit. 31 00:01:35,720 --> 00:01:37,440 Speaker 2: You know, the economy could lose one into the again, 32 00:01:37,480 --> 00:01:41,280 Speaker 2: in which case hikes could come later, but we're sort 33 00:01:41,280 --> 00:01:43,440 Speaker 2: of thinking sometime around the end of the year. 34 00:01:44,160 --> 00:01:48,200 Speaker 1: The problem here is, well, it's more rates and insurance. 35 00:01:48,240 --> 00:01:50,560 Speaker 1: They just keep going up and they don't stop, do they. 36 00:01:51,600 --> 00:01:54,840 Speaker 2: No, that is certainly true. Administered prices and those sort 37 00:01:54,840 --> 00:01:56,920 Speaker 2: of prices of Reserve Bank can't do anything about. We're 38 00:01:57,000 --> 00:01:59,920 Speaker 2: certainly a part of the story. But was notable about 39 00:02:00,160 --> 00:02:03,480 Speaker 2: this release was actually that the surprises were pretty broad 40 00:02:03,560 --> 00:02:09,160 Speaker 2: based no matter how you cut it. Generally speaking, it 41 00:02:09,360 --> 00:02:11,600 Speaker 2: was stronger than the Reserve Bank or was expecting. The 42 00:02:12,080 --> 00:02:15,440 Speaker 2: core inflation measures, sort of stripping out the noise they're 43 00:02:15,480 --> 00:02:18,720 Speaker 2: still in the target band. The Reserve Bank doesn't forecast though, 44 00:02:18,760 --> 00:02:21,760 Speaker 2: so we can't sure what they were expecting, but they 45 00:02:21,800 --> 00:02:25,480 Speaker 2: were they were pretty next And the non tradeable inflation, 46 00:02:25,560 --> 00:02:28,880 Speaker 2: which is the domestic part of inflation, heavily influenced by 47 00:02:29,000 --> 00:02:33,600 Speaker 2: things like wages that didn't fall. It was steady at 48 00:02:33,600 --> 00:02:35,920 Speaker 2: three and a half, which is a bit too high, 49 00:02:36,000 --> 00:02:38,000 Speaker 2: and whereas the Reserve Bank had been thinking it would 50 00:02:38,000 --> 00:02:40,280 Speaker 2: fall to three point two. So you can't just point 51 00:02:40,360 --> 00:02:43,239 Speaker 2: to a couple of technical things and say it's just noise. 52 00:02:43,639 --> 00:02:46,160 Speaker 1: Stubborn, isn't it. When does it start to come down? 53 00:02:46,280 --> 00:02:48,920 Speaker 1: Like you know, because when the rates were dropped at 54 00:02:48,919 --> 00:02:50,359 Speaker 1: the end of last year, we were told they could 55 00:02:50,400 --> 00:02:54,120 Speaker 1: look through some short term, medium term increases in inflation. 56 00:02:54,960 --> 00:02:56,919 Speaker 1: Does this mean that we will come down again? 57 00:02:57,880 --> 00:03:00,000 Speaker 2: Well, what is true is that the inflation data tells 58 00:03:00,160 --> 00:03:02,160 Speaker 2: you more about the past than about the future. It 59 00:03:02,240 --> 00:03:05,200 Speaker 2: tells you where you've been. On the other hand, three 60 00:03:05,240 --> 00:03:07,720 Speaker 2: point one does have a different ring to it than 61 00:03:07,760 --> 00:03:11,960 Speaker 2: three because the reserve banks target is one to three percent. 62 00:03:12,120 --> 00:03:16,520 Speaker 2: So that's awkward, I would say, But the outlook for 63 00:03:16,560 --> 00:03:19,799 Speaker 2: inflation really depends on how much spare capacity there is 64 00:03:19,840 --> 00:03:23,359 Speaker 2: in the economy, So the unemployment rate is a key 65 00:03:23,400 --> 00:03:26,360 Speaker 2: part of that, but machine sitting idle essentially, and how 66 00:03:26,440 --> 00:03:28,600 Speaker 2: much lung capacity have we got for a burst of speed, 67 00:03:28,840 --> 00:03:32,760 Speaker 2: And there's a huge amount of uncertainty around that, and 68 00:03:32,880 --> 00:03:37,560 Speaker 2: some indicators like our Business Outlooks survey are suggesting that 69 00:03:37,640 --> 00:03:40,000 Speaker 2: the Reserve Bank that's so that the economy might be 70 00:03:40,040 --> 00:03:44,120 Speaker 2: getting a bit puffed already, which isn't't a happy thought. 71 00:03:44,840 --> 00:03:48,000 Speaker 2: But essentially the Reserve Bank can't do anything about the 72 00:03:48,680 --> 00:03:50,720 Speaker 2: long term growth rate of the new Zeander economy. They 73 00:03:50,720 --> 00:03:54,160 Speaker 2: can just try and smooth it out essentially. So yeah, 74 00:03:54,200 --> 00:03:56,480 Speaker 2: there's a lot of uncertainty out there about how much 75 00:03:56,480 --> 00:03:58,720 Speaker 2: spare capacity is left in the economy. We've got labor 76 00:03:58,760 --> 00:04:01,680 Speaker 2: market data coming up pretty soon on the fourth of Debris, 77 00:04:01,720 --> 00:04:05,360 Speaker 2: I think it is that'll be probably more important for 78 00:04:05,400 --> 00:04:08,320 Speaker 2: the future track of interest rates than today's. 79 00:04:07,960 --> 00:04:11,240 Speaker 1: Darter is Sharon appreciate that updates Sharon Zolner, who is 80 00:04:11,320 --> 00:04:12,560 Speaker 1: chief economist at am Z. 81 00:04:13,280 --> 00:04:16,440 Speaker 2: For more from Heather Duplessy Allen Drive, listen live to 82 00:04:16,560 --> 00:04:19,559 Speaker 2: News Talk z B from four pm weekdays, or follow 83 00:04:19,600 --> 00:04:21,400 Speaker 2: the podcast on iHeartRadio.