NZ on slow growth path, says economist
The interest rate curves are inverting as the central bank’s rate hikes become larger, according to one economist.
Kiwibank chief economist Jarrod Kerr (pictured above) said higher interest rates were gaining traction and growth expectations within the New Zealand economy were being slashed.
“With our inflation now tipped at 7.3% – the highest rate in 32 years – it’ll be a slow journey back to where we were at 2%,” Kerr said. “The volatility in interest rate markets has died down although liquidity remains thin in parts.”
Kerr said an inverted inflation yield curve had lowered longer term interest rates and was a signal of slowing growth and even recession.
“The curve inversion is a symptom of the fight against inflation,” he said. “Rate hikes are being front-loaded as central banks speed up their response to rising inflation, with short-dated interest rates rising above further rate increases.”
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Kerr said the inverted inflation curve was no surprise.
“The RBNZ is tackling high inflation by lifting the OCR well into restrictive territory. Meanwhile, business and consumer confidence has dropped to very pessimistic levels,” he said.
Kerr said consumer prices were now up 7.3% compared to a year ago.
“The rapid run up in prices is a global phenomenon and we’re importing our fair share,” he said. “Shipping costs are stubbornly high, commodity prices were elevated and a weaker Kiwi currency isn’t doing us any favours.”
Kerr said the most harrowing detail in the latest inflation statistics was the growing strength in domestically generated inflation.
“Non-tradables (domestic) inflation rose to a record high 6.3% year-on-year and no surprises, housing-related costs were the number-one culprit,” he said. “Meanwhile, builders can’t keep up with the pipeline of residential construction projects, which is bursting at the seams.”
Read more: Triple rate hike next month a possibility after inflation hits 7.3%
Kerr said severe shortages in materials and labour were holding back building activity.
“The consequence of high demand, low supply equals crazy high construction costs as the cost of new dwellings are up a whopping 18% over the year,” he said. “The rise in measures of core inflation was also cause for concern especially as underlying inflation pressure continues to broaden. The June quarter may mark the peak in annual inflation and what goes up must come down – but in this case, very slowly.”
