She says that there is now light at the end of the tunnel
The annual CPI inflation has fallen to 2.2% and serves as a sign that there is light at the end of the tunnel for the economy, according to ANZ economist Sharon Zollner (pictured).
During the latest episode of the weekly New Zealand Economics podcast, Zollner stated that the annual CPI inflation of rate of 3.3% in the second quarter of the year has dropped to 2.2% and was only slightly weaker than the forecasted August monetary policy statement of the Reserve Bank of New Zealand (RBNZ) which was 2.3%.
“At the headline level, we're pretty much at target because tradable inflation, which is broadly the imported part of inflation, is actually down 1.6% year-on-year,” said Zollner.
Zollner said that this decline in tradable inflation was important as lower petrol price alongside the Auckland fuel tax change was helpful in the decrease in the headline reported rate of inflation.
“We have updated our CPI forecasts and essentially, because there weren't any meaningful surprises in it, we've just basically banked the starting point and carry on from there,” said Zollner.
“We're still pencilling in a 0.4% quarterly rise in the last quarter of the year, with a 0.7% lift in non-tradable and another small fall in tradable that would see annual headline inflation basically flat, falling a tiny smidge into 2.1. But within that, we see non-tradable inflation falling another 0.4 percentage points down to 4.5.”
She also pointed out that while wage pressure may remain subdued, there are still skill shortages faced by firms that are looking to find skilled workers.
“Firms are now hiring recruitment firms because they're being swamped with more applicants they can handle, rather than hiring recruitment firms because they just need someone's shoulder to be tapped because no one is applying for their job,” said Zollner.
She added that this was a dramatic change in the labour market because of the cooling economy as well as the surge in labour supply through immigration. With the labour market usually lagging activity in the economy by around six months, Zollner said that June had been the worst in terms of the high-frequency data indicators.
She said the housing market was a sign that the economy was responding to the lower inflation rates.
“A hot labour market encourages durable spending and construction. But also, a strong economy supports the housing market through incomes and job security, that sort of thing,” said Zollner.
“It's hard to overstate the uncertainty around what the housing market will do from here.
It is one of actually the harder parts of the economy to predict, but obviously lower interest rates are a support.”
