Short-term economic outlook

After several years of restrictive monetary policy to control inflation, we were on a solid path to recovery. There was a clear path ahead, then someone decided to go play in the sand. 

Insights with Infinance by Brian Coogan

Now, here we are with inflation back on the table as a direct result of cost increases in production and distribution brought about by fuel price increases. 

The Reserve Bank held the Official Cash Rate (OCR) at 2.25% on May 27, with a four-to-three vote by the Monetary Policy Committee. It came with warnings of imminent increases.  

The Reserve Bank’s inflation target is between 1% and 3% and inflation figures from April are 3.1%. That was easing but now, with upward pressure, it is expected to peak at 4.3% by the September quarter. 

This points to a likely 0.25% increase in the OCR on July 5, followed by another 0.25% increase on September 2. It will be a case of wait-and-see on October 28. 

The aim is to get to the 2% inflation target by mid-2027 and back on track with our recovery. That depends on things settling down in the Middle East - right now, it’s anyone’s guess.  

This of course is complete conjecture with a sprinkle of tea leaf reading and a case of watch this space. The next inflation announcement is on July 21. 

The result of all this is likely a couple of small increases in interest rates in July and September. It will delay the recovery by a few months rather than derail it. 

Banks have strong capital and funding buffers meaning they are well placed to support customers who may be struggling, and able to manage stress in offshore funding markets. 

For more in depth on the above, links to RBNZ sources and some commentary on inflation in general go to www.infinance.co.nz/insights 

Brought to you by Brian Coogan, Licensed Financial Adviser and Director at Infinance – Taupō. 

“Domestic inflation reflects domestic monetary policy” – Martin Feldstein