Report shows impacts of rising inflation on NZ economy
Inflationary pressures remain high in New Zealand despite the Reserve Bank of New Zealand’s (RBNZ) interest rate hike last year and other government efforts, and a new report has now revealed how soaring inflation could impact the country’s economy.
Last month, ACT New Zealand (ACT) slammed the government after finding that inflation in New Zealand sat at 4.9% in the September 2021 quarter, which ACT Associate Finance spokesperson Damien Smith deemed “an inevitable result of printing money as a cushion through COVID-19. Kiwis are now literally paying the price.”
Now, a report by Kalkine Media (Kalkine) has revealed that increasing inflationary pressures, combined with the threat from the new Omicron variant, are fuelling concerns around the near-term economic outlook of the country – emphasising that a rebound in economic growth is often followed by rising inflationary pressures as the economy sees more consumer activity when it recovers, boosting the existing money flow.
Additionally, it noted that central bank experts claimed the current rise in inflation might soon end. However, other specialists disagreed, fearing that inflation levels resemble the scenario in the 1970s when inflation reached 18%.
Read more: Cost of living in New Zealand shoots up, ACT slams government
The report also emphasised that the RBNZ’s decision to increase interest rates for the second time in a row to 75 basis points last year sent alarm bells across the country. It claimed that much of the ongoing inflation has been concentrated in the housing and construction sectors, which continue to face supply chain constraints and piling demand during the pandemic.
It also warned about stagflation, a commonly feared outcome of rising prices, as most stagflationary pressures in the past occurred after a shock to the economy that restricted economic growth and created a massive supply-demand gap.
This year, the report expects tightening measures by the central bank and an increase in interest rates of up to 2.5% by 2023. It also predicts that a rise in job postings could help the labour market recover and economic output grow.
However, the report warns that house prices could rise further, emphasising the need for additional checks from the government.
