What does inflation data mean for your home loan?
Photo:
RNZ
Inflation pushed up to its
highest level in a year
in the June quarter - but what is that likely to mean for interest rates?
From the end of 2021, the Reserve Bank steadily hiked the
official cash rate
to get on top of inflation that peaked at an annual rate of more than 7 percent.
But while the 2.7 percent annual increase recorded in June will be uncomfortable for those paying the higher council rates and rents that helped drive the increase, commentators say it's not likely to mean much for the future track of home loan rates or the official cash rate (OCR).
The lift was in line with
Reserve Bank expectations
published in May, and less than some economists had forecast and the bank signalled in July.
It is widely expected that the Reserve Bank will cut the official cash rate again in August, by 25 basis points (bps).
That could pull short-term rates down slightly, but longer-term home loan rates tend to be more influenced by international factors.
But what happens after that is less certain.
Some economists expect a further drop is likely.
Miles Workman, senior economist at ANZ, said the data was not a road block for further OCR cuts.
"We continue to pencil in OCR cuts for August, November and February, but today's data suggest the easing we've long been expecting could arrive a little more quickly."
He said the risks were tilting towards further cash rate easing being delivered sooner than the bank's expectation of cuts only at monetary policy statements, rather than the reviews in between.
"We have long been expecting the RBNZ will need to cut the OCR more than they have recently been signalling ... the risk of a follow-up cut in October is now looking higher. Labour market data in early August will be important."
ANZ senior economist Miles Workman.
Photo:
Supplied
Kiwibank economists argued the official cash rate should still drop to 2.5 percent, to absorb some of the slack in the economy, particularly in the labour market.
"Our best guess, incorporating the damage inflicted through the recession we're still crawling out of, has inflation falling to 1.8 percent next year. If realised, the RBNZ continues to overcook."
Westpac said it was still expecting a 25bps cut in August but it would watch core inflation measures to see how strong the underlying trend in prices was beyond that.
But Gareth Kiernan, chief forecaster at Infometrics, said he expected the Reserve Bank would need to stop at an OCR of 3 percent.
"There were reassuring signs in there that the price pressures are more isolated than broad-based. So there's enough to suggest the bank can ease a bit more, but not massively.
"Sustained weakness in labour market data in a couple of weeks' time, along with other monthly data around job ads, employment, consumer spending, and manufacturing activity would be necessary to push the bank towards further cuts in October and/or November."
ASB economists expect a cut to 3 percent in August, but said there was both upside and downside risk.
"After earlier tapping the monetary policy brakes, the RBNZ is expected to press the accelerator and actively provide policy support. We expect the OCR to be cut by 25bps in August to 3 percent. The inflation outlook is highly uncertain, with both upside and downside risks to this view. Persistently high inflation could see the OCR held at 3.25 percent. However, a more protracted than envisaged mid-2025 downturn in NZ economic activity, a higher NZ unemployment rate (expected to hit at least 5.3 percent in 2025), or a global economic slump could push medium-term NZ inflation lower and see the OCR move below 3 percent."
Sign up for Ngā Pitopito Kōrero
,
a daily newsletter curated by our editors and delivered straight to your inbox every weekday.
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
RNZ News
2 hours ago
- RNZ News
The Panel with Jo McCarroll and Mark Knoff-Thomas Part 1
Tonight on The Panel, Wallace Chapman is joined by panellists Jo McCarroll and Mark Knoff-Thomas. First they discuss the RNZ story by Guyon Espiner about NZ First's relationship to the nicotine industry. They then examine proposed changes to allow more housing on food productive land, and, finally, Finance Minister Nicola Willis says New Zealanders are not getting a raw deal on butter: discuss! To embed this content on your own webpage, cut and paste the following: See terms of use.
RNZ News
3 hours ago
- RNZ News
Morris and James set to close after half a century of pottery sales
Morris and James' designs are well known for their bold colours and distinctive designs. Photo: Supplied An iconic Matakana ceramics business has made the decision to close its doors after 47 years. For nearly five decades, Morris and James pottery has graced gardens and living rooms across the country, all made on site in its north Auckland base of Matakana. But the business is set to close, citing the current economic crisis as a major factor. Founded in 1977 by Anthony Morris and Sue James, the designs are well known for their bold colours and distinctive designs. Kieran Rice is among those who bought the business in 2009, and is the managing director at Morris and James Matakana. He told Checkpoint the decision was a difficult one for both staff and customers. "It was very, very hard and quite sad... it was a very difficult day when we talked to the staff about it." He said the support from the community had poured in today, following the announcement they were set to close. "People are supportive. We've got great customers and and great staff and they sort of understand the situation, and say we've been a cornerstone of the Matakana tourism for a long time." Rice said that he had never experienced tougher times when operating a business, with spending down for most shoppers. "It's definitely been difficult and these are discretionary spends so you know people have priorities. "People still support us and buy our stuff. But it's just that little bit harder than it had has been in the past." Morris and James Pottery will be closing its doors after 47 years. Photo: Supplied A number of reasons had contributed to the decision to close. Rice said these included a lack of spending, increasing costs and a need to update equipment. "We're at the stage now where we need to start thinking about investing in new kilns or upgrading kilns... and those are big investment decisions with long paybacks. "So some of those things also have been difficult decisions for us to go one way or the other." There is not yet a closure date for the business, with the team wanting to use up the remaining clay before closing the doors. "We're carrying on making for probably another two months and probably manufacturing for another three months by the time we're finished glazing." In that time, he hoped an investor may pop up to potentially save the business. "We're crossing our fingers a bit too... [that] an angel investor might turn up that wants to buy things." Rice said the business will vacate their current premises once they close the doors, and the owners hope to open it up as a space for creatives. Before the closure, the team is focusing on creating orders, and are making special items for customers who request it. Sign up for Ngā Pitopito Kōrero , a daily newsletter curated by our editors and delivered straight to your inbox every weekday.
RNZ News
3 hours ago
- RNZ News
Fonterra boss meets with politicians over high butter prices
Fonterra's boss has given media the silent treatment over the sky high price of butter. Both National and Labour's finance spokespeople met with Fonterra's chief executive Miles Hurrell last night, trying to find out why the cost of a block is so steep. But whether the debate leads to a price correction or just more froth and churn from lawmakers is yet to be seen. Russell Palmer reports.
