1 00:00:00,560 --> 00:00:01,840 Speaker 1: Andrew Dickens. 2 00:00:02,960 --> 00:00:07,000 Speaker 2: Okay, we're joined now by Paul Bloxam from AHSBC to 3 00:00:07,080 --> 00:00:09,440 Speaker 2: talk about the New Zealand economy. Welcome to the program, Paul, 4 00:00:09,440 --> 00:00:10,239 Speaker 2: and happy new Year. 5 00:00:11,200 --> 00:00:12,480 Speaker 1: Good a happy new year to you too. 6 00:00:13,000 --> 00:00:17,480 Speaker 2: New Zealand inflation data for the December quarter is out tomorrow. 7 00:00:17,880 --> 00:00:20,360 Speaker 2: We've already had Brad Olson on from infor metrics. He 8 00:00:20,440 --> 00:00:23,440 Speaker 2: reckons two percent. That means the inflation rate is falling. 9 00:00:23,520 --> 00:00:25,799 Speaker 2: He's got one of the lowest rates out of everybody. 10 00:00:25,880 --> 00:00:28,960 Speaker 1: What do you reckon, Well, we've got two point one, 11 00:00:29,080 --> 00:00:31,280 Speaker 1: so we're slightly above him, but we're below slightly below 12 00:00:31,320 --> 00:00:34,120 Speaker 1: the consensus, so we've still got inflation falling as well. 13 00:00:35,240 --> 00:00:37,360 Speaker 1: And I think the main thing though to keep in mind, 14 00:00:37,520 --> 00:00:39,680 Speaker 1: inflation looks as though it's fairly clearly going to be 15 00:00:39,760 --> 00:00:43,199 Speaker 1: around the center of the around the center of the 16 00:00:43,320 --> 00:00:46,519 Speaker 1: Arbenza's target band and roughly on target. The key thing 17 00:00:46,600 --> 00:00:48,080 Speaker 1: to look out for, though will be to look for 18 00:00:48,080 --> 00:00:51,839 Speaker 1: those underlying measures, the core measures of inflation, and in 19 00:00:51,840 --> 00:00:55,320 Speaker 1: particular non tradable, so the part of inflation that's about 20 00:00:55,320 --> 00:00:59,040 Speaker 1: domestic inflation, so services inflation, because that's the part that 21 00:00:59,160 --> 00:01:02,280 Speaker 1: had been rising still too quickly, and probably although it 22 00:01:02,280 --> 00:01:05,319 Speaker 1: will be coming down, will still be slightly elevated, and 23 00:01:05,360 --> 00:01:07,880 Speaker 1: it will be that piece of information really sort of 24 00:01:07,920 --> 00:01:11,240 Speaker 1: firms up how much the RBNZ is likely to cut 25 00:01:11,319 --> 00:01:14,360 Speaker 1: next month. Now you know, we think they're going to cut. 26 00:01:14,360 --> 00:01:15,880 Speaker 1: We think there are a number of cuts yet to 27 00:01:15,880 --> 00:01:18,560 Speaker 1: come from the rb and Z. You know, inflation is 28 00:01:18,600 --> 00:01:20,880 Speaker 1: coming down, the economy has been very weak, and the 29 00:01:20,959 --> 00:01:23,760 Speaker 1: rbnz's got scope to lower interest rates, but it's just 30 00:01:23,800 --> 00:01:26,160 Speaker 1: a question of how much front loading. How quickly do 31 00:01:26,240 --> 00:01:28,160 Speaker 1: they lower rates. Do they go fifty, do they go 32 00:01:28,240 --> 00:01:30,480 Speaker 1: twenty five? And these numbers are going to help to 33 00:01:30,560 --> 00:01:31,200 Speaker 1: firm that up. 34 00:01:31,319 --> 00:01:33,959 Speaker 2: I think this is a very important point to stress 35 00:01:34,080 --> 00:01:36,600 Speaker 2: because when we look at inflation, there are two types, 36 00:01:36,640 --> 00:01:40,160 Speaker 2: tradable and non tradable inflation, and the measure that gives 37 00:01:40,160 --> 00:01:43,200 Speaker 2: publicized is the average of the two. And so just 38 00:01:43,240 --> 00:01:46,840 Speaker 2: before Christmas, the politicians were starting to say, look at this, 39 00:01:46,959 --> 00:01:50,520 Speaker 2: We've got it under control. But the tradeabill was certainly 40 00:01:50,600 --> 00:01:53,200 Speaker 2: under two, but the non tradable was round about what 41 00:01:53,280 --> 00:01:56,520 Speaker 2: four point eight percent, and that is you know, rents 42 00:01:56,560 --> 00:02:00,800 Speaker 2: and rates and electricity supply and all that sort of thing. 43 00:02:01,000 --> 00:02:03,440 Speaker 2: Four point eight is still high and it's too soon 44 00:02:03,480 --> 00:02:05,360 Speaker 2: to say we've got inflation under control. 45 00:02:06,240 --> 00:02:08,839 Speaker 1: Oh, that's right. So this is the non tradable part, 46 00:02:08,919 --> 00:02:11,959 Speaker 1: is the services part. It's mostly domestic inflation, and really, 47 00:02:11,960 --> 00:02:13,480 Speaker 1: when you think about it, it's the thing that the 48 00:02:13,600 --> 00:02:16,640 Speaker 1: arbens that has the most influence on with its policy leader. 49 00:02:16,760 --> 00:02:19,800 Speaker 1: So it lowers the policy rate, lifts it of course 50 00:02:19,800 --> 00:02:22,480 Speaker 1: sometimes and that has a bigger impact on the domestic 51 00:02:22,520 --> 00:02:25,120 Speaker 1: economy than it does on those international forces that are 52 00:02:25,200 --> 00:02:28,040 Speaker 1: driving tradable. So in some ways you look at services 53 00:02:28,040 --> 00:02:31,400 Speaker 1: inflation non tradable inflation not just to assess the momentum 54 00:02:31,720 --> 00:02:35,360 Speaker 1: in inflation and determine where you're at, but also because 55 00:02:35,400 --> 00:02:37,480 Speaker 1: it's the bit that the monetary policy can have the 56 00:02:37,520 --> 00:02:39,760 Speaker 1: most influence on. So that will be the thing really 57 00:02:39,800 --> 00:02:41,919 Speaker 1: to keep a close eye on tomorrow when we get 58 00:02:41,919 --> 00:02:42,480 Speaker 1: those numbers. 59 00:02:42,680 --> 00:02:45,280 Speaker 2: Absolutely, also the government has control because they have the 60 00:02:45,360 --> 00:02:47,880 Speaker 2: regulatory control, so they can also help in the battle 61 00:02:47,919 --> 00:02:52,400 Speaker 2: against non tradable But that's tomorrow's conversation. To Australia, unemployment 62 00:02:52,440 --> 00:02:54,640 Speaker 2: now sitting at four percent, how's the job market? 63 00:02:55,919 --> 00:02:58,800 Speaker 1: The job market is still strong, and I would say 64 00:02:58,800 --> 00:03:01,120 Speaker 1: there's some signs that it's looking as though it's starting 65 00:03:01,160 --> 00:03:04,240 Speaker 1: for Titan as well rather than loosen. So you know, 66 00:03:04,320 --> 00:03:06,920 Speaker 1: if you recall the obviously, the RBA has been trying 67 00:03:06,960 --> 00:03:09,120 Speaker 1: to get inflation down as well, and one of the 68 00:03:09,120 --> 00:03:11,480 Speaker 1: ways you do that is having listed interest rates. They've 69 00:03:11,480 --> 00:03:14,560 Speaker 1: been flowing the economy and despite the fact that the 70 00:03:14,600 --> 00:03:16,920 Speaker 1: GDP growth or growth in the economy has slowed down 71 00:03:17,000 --> 00:03:19,320 Speaker 1: quite a lot last year, the labor market has still 72 00:03:19,320 --> 00:03:21,240 Speaker 1: continued to be quite resilient. There was quite a lot 73 00:03:21,240 --> 00:03:23,720 Speaker 1: of job creation in December, that's the number you're referring to. 74 00:03:24,320 --> 00:03:27,080 Speaker 1: And despite the fact that the unemployment rate ticked slightly higher, 75 00:03:27,320 --> 00:03:30,360 Speaker 1: it's still actually below the level that had reached in 76 00:03:30,360 --> 00:03:32,239 Speaker 1: the middle of last year. It had reached four point two. 77 00:03:32,240 --> 00:03:34,600 Speaker 1: It's come down to four. So you know, you've got 78 00:03:34,600 --> 00:03:37,400 Speaker 1: a strong labor market and it looks like, well, the 79 00:03:37,560 --> 00:03:40,360 Speaker 1: labor market may very well be tightening, so it really 80 00:03:40,560 --> 00:03:42,760 Speaker 1: makes it hard for the RBA to think about cutting 81 00:03:42,800 --> 00:03:45,120 Speaker 1: interest rates. We've got an inflation print in Australia that 82 00:03:45,200 --> 00:03:47,640 Speaker 1: comes out next week, and of course that will play 83 00:03:47,680 --> 00:03:50,120 Speaker 1: a role in this in this story as well. But 84 00:03:50,200 --> 00:03:53,160 Speaker 1: of course the NZ or the RBA hasn't even lowered 85 00:03:53,200 --> 00:03:55,840 Speaker 1: interest rates yet. So this is a question as to 86 00:03:55,880 --> 00:03:57,760 Speaker 1: whether they'll be able to go in February. 87 00:03:59,120 --> 00:04:01,320 Speaker 2: And final question which you might not have been prepared for, 88 00:04:01,400 --> 00:04:04,360 Speaker 2: but it's obviously the story of the day Donald Trumps 89 00:04:04,600 --> 00:04:08,560 Speaker 2: n he has threatened by February twenty five percent tariffs 90 00:04:08,560 --> 00:04:12,000 Speaker 2: on Canada and Mexico. How might that affect Australia and 91 00:04:12,040 --> 00:04:13,880 Speaker 2: New Zeine? How likely are we to be hit by 92 00:04:13,920 --> 00:04:16,440 Speaker 2: tariffs in a trade will Well. 93 00:04:16,279 --> 00:04:18,480 Speaker 1: There's a lot of uncertainty in this story because a 94 00:04:18,560 --> 00:04:22,000 Speaker 1: part of it is that although he's noted during the 95 00:04:22,080 --> 00:04:25,560 Speaker 1: day that they might put in place tariffs, he's also 96 00:04:25,600 --> 00:04:29,200 Speaker 1: pointed out that they're a negotiating tactic, and then so 97 00:04:29,279 --> 00:04:32,280 Speaker 1: it's not entirely clear that those are going to be introduced. 98 00:04:32,920 --> 00:04:35,480 Speaker 1: And then of course the question is whether it spreads 99 00:04:35,520 --> 00:04:38,239 Speaker 1: more widely than that to other countries too, as you say, 100 00:04:38,560 --> 00:04:40,560 Speaker 1: and then in addition to that, just to add to 101 00:04:40,600 --> 00:04:43,640 Speaker 1: the complications, it's not just about assessing what happens with 102 00:04:43,800 --> 00:04:46,880 Speaker 1: US policy, but what do other countries do in response 103 00:04:46,960 --> 00:04:49,279 Speaker 1: in terms of their policies. And the major one that 104 00:04:49,320 --> 00:04:51,560 Speaker 1: we really have to watch out for in Australia and 105 00:04:51,640 --> 00:04:54,719 Speaker 1: New Zealand is what China does in response, because that's 106 00:04:54,880 --> 00:04:57,919 Speaker 1: our biggest trading partner, you know. Obviously New Zealand and 107 00:04:57,920 --> 00:05:01,599 Speaker 1: Australia very very strongly driven by the China story. So 108 00:05:02,000 --> 00:05:04,880 Speaker 1: it's a very very complicated web to sort of see, well, 109 00:05:04,920 --> 00:05:07,359 Speaker 1: one thing happens in one country, it really matters what 110 00:05:07,400 --> 00:05:10,320 Speaker 1: happens in other countries as well, and it's this that's 111 00:05:10,360 --> 00:05:12,239 Speaker 1: creating quite a bit of uncertainty. Obviously. 112 00:05:12,320 --> 00:05:14,880 Speaker 2: I told you a Republican strategist today and she said, 113 00:05:14,920 --> 00:05:16,839 Speaker 2: you've got to remember that Donald Trump is a businessman 114 00:05:16,839 --> 00:05:18,720 Speaker 2: and when it comes to negotiation, what do you do? 115 00:05:18,800 --> 00:05:21,440 Speaker 2: You start high, but you can often end out low. 116 00:05:21,720 --> 00:05:23,920 Speaker 2: So we'll wait to see what happens. Paul, It's always 117 00:05:23,920 --> 00:05:25,280 Speaker 2: a pleasure to talk to you. Thank you for your 118 00:05:25,279 --> 00:05:29,800 Speaker 2: time today. Now worries Paul Boxam. He is the HSBC 119 00:05:30,279 --> 00:05:31,320 Speaker 2: Chief Economist. 120 00:05:32,200 --> 00:05:35,360 Speaker 1: For more from Hither Duplessy Allen Drive, listen live to 121 00:05:35,480 --> 00:05:38,479 Speaker 1: news talks it'd be from four pm weekdays, or follow 122 00:05:38,520 --> 00:05:40,320 Speaker 1: the podcast on iHeartRadio.