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Speaker 1: Inflation is officially back where it belongs. CPI for Q

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Speaker 1: three came in at two point two percent today. That

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Speaker 1: is well within the one to three percent target range.

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Speaker 1: Now this puts pressure obviously on the Reserve Bank to

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Speaker 1: continue dropping the official cash rates significantly before the end

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Speaker 1: of the year. Brad olsonism for metrics principle economists. Hey, Brad,

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Speaker 1: good evening. Now we can't say it's totally beaten, because

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Speaker 1: obviously it could rise again. How do you rate the

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Speaker 1: chance that inflation goes back up.

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Speaker 2: Look at the moment, it's an exciting day to see

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Speaker 2: inflation back in the target band, and I'll take that

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Speaker 2: for the moment. Yes, there are always risks abound, particularly

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Speaker 2: you know, you look at the likes of fuel prices

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Speaker 2: which have come down in the last quarter or so.

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Speaker 2: That's been encouraging, but at the same time always a

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Speaker 2: risk that you know, foreign activities come through and you

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Speaker 2: have conflict that means that fuel prices rise, so that

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Speaker 2: there's a risk. You're totally right, and certainly this inflation

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Speaker 2: figure as well that was published today has been affected

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Speaker 2: by a number of government policy changes, the likes of

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Speaker 2: the Family Boost scheme for early childhood, the return of

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Speaker 2: prescription charges, the end of the year Aukland regional fuel tech.

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Speaker 2: So there's a lot of moving parts, but long story short,

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Speaker 2: those core measures of inflation are in a better place.

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Speaker 2: We've got headline inflation back in the target band and

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Speaker 2: actually pretty close to the midpoint. Inflation was better than

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Speaker 2: the bank is a good result. It does, I think,

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Speaker 2: also reinforce why the Reserve Bank was right to go

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Speaker 2: with that fifty basis point cut last week, because it

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Speaker 2: is obviously quite clear that phase and basing there's no

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Speaker 2: need much restriction on them.

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Speaker 1: Listen, Brad, your phone is just cracking up. So if

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Speaker 1: you've moved into a spot that's a bit dodgy, moved

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Speaker 1: back to the other spot that you were at at

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Speaker 1: the start, because that was pretty good. Do you think

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Speaker 1: now that inflation is sitting at two point two percent,

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Speaker 1: that the OCR at four point seventy five percent is

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Speaker 1: too high?

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Speaker 2: Yes, quite clearly, that the official cash rate is too high,

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Speaker 2: and I think that's why there is a strong possibility

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Speaker 2: now that the Reserve Bank will have to not only

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Speaker 2: continue to cut the official cash rate more aggressively than

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Speaker 2: it might have originally intended to, but it does open

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Speaker 2: that strong possibility of a seventy five basis point cut

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Speaker 2: in November when they meet in a couple of weeks

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Speaker 2: at time, because they'll be looking at taking a three

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Speaker 2: month break a twelve week break over summer. Obviously, inflation

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Speaker 2: is in a better position, the economy doesn't need to

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Speaker 2: be restricted as much, and so they might well need

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Speaker 2: to accelerate how quickly they try and normalize things.

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Speaker 1: So, if four point seventy five percent is too high,

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Speaker 1: where should it be?

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Speaker 2: You've got to feel like at the moment, probably somewhere

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Speaker 2: around three and a half is sort of the shoe

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Speaker 2: plate place to get to.

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Speaker 1: Then we're talking about one hundred and twenty five basis

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Speaker 1: point cut and they've only got one more cut left

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Speaker 1: this year.

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Speaker 2: Yes, but and this is the challenge, is that around

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Speaker 2: three and a half is probably where you want to

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Speaker 2: get to. Now. The risk is if you did something

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Speaker 2: crazy like one hundred or one hundred and twenty five,

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Speaker 2: I think that would signal to people that you've sort

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Speaker 2: of lost all control. And so I think it's something

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Speaker 2: like seventy five. The Reserve Bank can say, look, we're

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Speaker 2: not saying we're wrong, but we're saying that we're wrong

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Speaker 2: enough that we probably need to accelerate things without putting

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Speaker 2: it down and writing anything more sounds like absolute emergency

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Speaker 2: alarm bells. Gfc's just happen again, And we're not quite

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Speaker 2: an position, because otherwise you would start to go, well,

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Speaker 2: the Reserve Bank might be doing the right thing, but

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Speaker 2: do I trust them that they've actually got any idea

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Speaker 2: what they're doing If they had to go so big,

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Speaker 2: fifty is sort of saying that they need to accelerate it.

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Speaker 2: Seventy five would be a big move, but they could

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Speaker 2: probably justify it in November, but they couldn't keep doing

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Speaker 2: it time and time again. So there's a little bit

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Speaker 2: of a balance for them in terms of do they

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Speaker 2: go big once and try and sort of really try

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Speaker 2: to get things down, but also they don't want to

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Speaker 2: get their inflation fighting credibility back and then also lose

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Speaker 2: it at the same time by everyone saying we've just

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Speaker 2: always moved too late on this stuff.

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Speaker 1: Brad, Have they realized that they got it wrong?

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Speaker 2: They'll never say it, but I mean put it this way.

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Speaker 2: They had twenty five basis point cut in August. They

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Speaker 2: followed that up with a fifty that wasn't really what

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Speaker 2: their own forecasts were implying, of course, go back to May,

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Speaker 2: and they were expecting interest rates might have to remain

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Speaker 2: high or go up. So I think that sort of

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Speaker 2: pivot that they've had, despite the fact that there aren't

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Speaker 2: as many pictures of all of this from the Reserve Bank. Yes,

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Speaker 2: they have got it wrong. They've moved too slow, move

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Speaker 2: too slow on raising restrates. They've now moved too slow

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Speaker 2: to bring them down, and that's quite clearly causing economic pain.

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Speaker 1: Good stuff, Brad, thank you very much, just as I thought.

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Speaker 1: That's Brad Olsen, Principal economist, add Informetrics. For more from

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Speaker 1: Heather Duplessy Allen Drive, listen live to news talks.

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