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New Zealand - Budget boost will exacerbate inflationary pressures

While the government’s Budget was focused on equipping households to withstand surging living costs, by adding to demand we think it will cause inflation to be higher over the next year. That’s all the more reason for the RBNZ to continue hiking rates aggressively throughout this year.
Ben Udy Australia and New Zealand Economist
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RBA Watch

RBA to keep hiking by 50bp for now

The Reserve Bank of Australia will probably lift the cash rate by another 50bp in July and August before reverting to smaller 25bp hikes. However, the risks are tilted towards a prolonged period of aggressive tightening and rates may well peak above our current forecast of 3%.

28 June 2022

Australia & New Zealand Economics Weekly

More 50bp hikes coming

We agree with RBA governor Phillip Lowe that market pricing for the Cash rate looks too aggressive. But we also think the consensus is still too dovish. After all, Governor Lowe is starting to grow concerned that wage growth will be too strong to allow the Bank to meet its target. And the RBA is still lagging behind a number of its peers in its hiking cycle. We therefore expect the RBA to hike rates to a peak of 3.1%, higher than the analyst consensus of a peak of 2.60%.

24 June 2022

Australia & New Zealand Economics Weekly

Inflationary pressures keep building

The big minimum wage hike announced by the fair work commission this week will lead to higher wage growth over the coming year. Given the tightness in the labour market and rising cost pressures, businesses will be forced to pass that rise onto consumers. That suggests the risks to our forecast that inflation will peak just above 7% in Q3, are tilted to the upside. World with Higher Rates - Drop-In (21st June, 10:00 ET/15:00 BST): Does monetary policy tightening automatically mean recession? Are EMs vulnerable? How will financial market returns be affected? Join our special 20-minute briefing to find out what higher rates mean for macro and markets. Register now  

17 June 2022

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RBNZ Watch

RBNZ to keep tightening aggressively

The New Zealand economy was running hot even when the Omicron variant was disrupting activity. Now that the peak of the Omicron wave has passed, mobility is rebounding and inflation expectations are rising even further. On that basis, we think the RBNZ will hike rates by another 50 bp at its meeting on 25th May 2022. And we still expect the RBNZ to hike rates at every meeting this year.

19 May 2022

Australia & New Zealand Data Response

Australia Wage Price Index (Q1)

The unchanged pace of quarterly wage growth in Q1 should ensure the RBA won’t accelerate its hiking cycle just yet. But with the labour market still tightening and inflation still rising, we think wage growth will increase further in the quarters ahead. ANZ Drop-in (18th May, 07:00 BST/14:00 SGT): Join economists from our Australia and Markets services shortly after the release of Q1 labour market data for a discussion about the Australian growth, inflation and monetary policy outlook. Register now.

18 May 2022

Australia & New Zealand Chart Book

Consumption to surge even as real incomes fall

We now expect Australia’s inflation to rise by more than 6% this year. Even allowing for an acceleration in earnings growth and a further solid rise in employment as immigration resumes, that will result in the first annual fall in real household disposable income since the early 1990s. By contrast, we expect gains in nominal disposable income to continue to stay ahead of increases in consumer prices in New Zealand. Even so, we expect Australia’s real consumption growth to outpace New Zealand’s this year, for two key reasons. First, consumer spending in Australia has only just started to surpass its pre-virus peak but is already well above that watermark in New Zealand. Accordingly, there’s more scope for catch-up in Australia. Second, consumer confidence in Australia has softened but has collapsed in New Zealand, where it reached an all-time low in March. We’ve pencilled in a 6% rise in Australia’s consumption this year, well above our forecast of a 2.8% rise in New Zealand. ANZ Drop-in (18th May, 07:00 BST/14:00 SGT): Join economists from our Australia and Markets services shortly after the release of Q1 labour market data for a discussion about the Australian growth, inflation and monetary policy outlook. Register now.

17 May 2022
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