Amid the soaring inflation rate and unchanged RBNZ monetary policy, businesses are into to cost-cutting, avoiding price increases
In his latest economic analysis, amid the Reserve Bank’s decision to peg the official cash rate (OCR) at 5.5% to control the soaring prices of goods and services in the country, economist Tony Alexander (pictured above) said that there is a growing trend among businesses to cut some of their operational costs and dodging to increase their prices, despite the decreasing profit margin.
“Businesses are cutting back on advertising with only a net 5% in my latest survey saying they will spend more in this area,” Alexander said. This is 21 percentage points lower than the survey results in the past six months. (See the figure 1)
Most businesses who participated in his survey said they plan to cut their spending on new market research in the next several months. (See figure 2)
“Spending plans for new equipment are [also] negative,” he said. (See figure 3)
“Even spending to retain existing customers is looking less firm though still net positive.” (See figure 4)
Alexander also revealed that based on the latest survey results, most respondents have no plans to spend on recruitment and expansion acquisition in the next several months (see figures 5 and 6).
Alexander said that while 12% of the businesses had reported that they have no plans to increase their prices in 2025, it is not enough to convince the RBNZ to change its mind and ease the current monetary policy when it comes to adjusting the OCR.
“Instead, they (RBNZ) will look at what is happening with the ANZ’s long-running business pricing intentions measure and look for a solid downward trend in that reading. There is no such trend as yet,” he said.
Since mortgages and other loans are affected by the current interest rates, Alexander has some advice for borrowers:
“The OCR was left unchanged at 5.5% as expected. But the Reserve Bank said domestic inflation from sources like rising council rates, insurance, and rents is proving stronger than anticipated. They discussed raising the cash rate but instead lifted slightly their projections of it for the next three years which is more an exercise in signalling their still hawkish stance rather than an explicit warning that more tightening lies ahead… If I were borrowing at the moment, I would take a mix of 6 and 12-month fixed rates and expect to make a similar decision in 6-12 months' time.”
