Outlook for 2023 remains dim, says economist
Despite inflation pressures easing offshore, there is still a risk of a recession locally, according to Kiwibank.
Annual US inflation declined for the sixth consecutive month, now sitting at 6.5%, the lowest rate recorded in over a year. Goods inflation is cooling, however tight labour market conditions are keeping services inflation elevated.
Kiwibank chief economist Jarrod Kerr (pictured above left) said the outlook for 2023 remains dim as higher interest rates and the risk of recession both here and abroad rises.
He was commenting on the New Zealand Institute of Economic Research’s December quarter survey of business confidence.
“Last year will be remembered for many things – one of which was the historic rise in inflation, but 2023 should see a sharp turnaround in consumer prices and the latest figures from the US are playing out just as hoped,” Kerr said.
“The sixth consecutive monthly decline now puts inflation well below the 9.1% peak recorded in June 2022. Stripping away the more volatile movements in food and energy prices, core inflation is also losing steam by rising to 5.7% in December, a slower pace than the 6% recorded in the month prior and the 6.6% peak in September.”
Inflation is finally easing
Kerr said the downtrend in inflation was encouraging, but it remained unacceptably high and it was too early to call victory in the ongoing battle.
“Easing inflation pressure has seen expectations of future interest rate increases evaporate,” he said. “The February meeting may see the Fed take a further step down and deliver a 25bp hike (not a 50bp).”
Official Cash Rate in 2023
Kerr said he predicted cash rates globally to peak in the first half of this year and central banks would start cutting interest rates by the end of 2023.
“Inflation pressures should continue to ease over 2023, although there are some frustrating undercurrents. The speed at which commodity prices, especially food and energy decline will be key,” he said.
“The Kiwi economy is in for a bumpy ride in 2023 with cost pressures, particularly from wages, still intense. With the labour market still as tight as a drum, the RBNZ will be wanting to see some signs that employment demand is easing. Forward indicators of inflation will likely remain uncomfortably high and justify further policy tightening by the RBNZ over the first half of 2023.”
Mental Health Foundation CEO Shaun Robinson said as the cost of living continued to rise, poverty puts additional pressure on some people.
“Just remember this is a difficult time (financially and otherwise) for many people and you are not alone in this,” Robinson told Newshub. “No matter what you’re worried about, connecting with a friend and opening up to a loved one or someone you trust can lighten the load significantly.”
Housing market falls further
Kiwibank senior economist Jeremy Couchman (pictured above right) said the end of 2022 brought a disappointing end to the housing market.
“The market continued to go through the motions of a correction in December as rising mortgage rates took a toll,” Couchman said.
“According to REINZ (Real Estate Institute of New Zealand), unconditional sales hit their lowest level for a December month since 1995 and the 4,336 sales picked up by REINZ at the end of 2022 fell short of the figure recorded back in 2008 by one.”
Couchman said the current level of activity indicated a weak housing market as house prices posted further losses.
“The REINZ House Price Index (HPI), down 1.3% seasonally adjusted, recorded the 13th consecutive monthly fall and over the December quarter as a whole, the HPI was 12.7% down on a year ago in line with our latest forecast,” he said.
“The median house price across Aotearoa managed to fall back below $800,000. However, to put current house price falls in context prices are back to levels seen in early 2021.”
Couchman said all regions except for Taranaki experienced price declines in December.
“Taranaki experienced an almost 2% rise in the HPI, offsetting a similar fall in November. On an annual basis house prices were down only 3.8% and prices are only 4% below their January 2022 peak,” he said.
“In contrast, the larger centres of the North Island are experiencing the largest market correction. Wellington is still the worst hit, with annual house price declines cracking the 20% mark in December.”
Auckland mortgage adviser Jarrod Kirkland, national manager mortgages of Auckland brokerage The Mortgage Lab, has compiled a list of helpful hints for New Zealanders wanting to buy a home in 2023.
“If you have decided to make the exciting leap into the property market this year, you may be unsure where to start,” Kirkland said.
“People should start by reviewing their budget to get an idea of where their money is being spent.”
What are your thoughts about the ongoing inflation battle? Tell us in the comments
