Brendan Larsen: Milford Asset Management expert on the possibility of more OCR changes

The Reserve Bank spent most of 2025 lowering the OCR, leaving experts to speculate how these changes impacted the economy.

Since then, economic and business confidence has gone up for the start of 2026, but inflation data for the December quarter has raised some concerns

Milford Asset Management expert Brendan Larsen explained further.

LISTEN ABOVE

See omnystudio.com/listener for privacy information.

Episode Transcript

Speaker 1 (00:09):
You're listening to a podcast from News Talk ZB follow
this and our wide range of podcasts now on iHeartRadio.

Speaker 2 (00:16):
It's right Brendan Larson, Milford Assett Management, High.

Speaker 3 (00:18):
Brandan Evening Heather Brendan.

Speaker 2 (00:21):
So it's been a little while since, of course, the
Reserve Bank had indicated to us that's the end of
the easing cycle. How do you reckon the economies transpired
since then?

Speaker 3 (00:29):
Yeah, that's right. The other n Z sort of ended
the year pretty happy with where they've got cash rates
to what we've sort of seen so far this year
has been reasonably encouraging. So on the growth front, we've
had a number of positive data points. The manufacturing PMI,
which is a measure of activity across manufacturing sectors, jump
to the highest level in four years. New orders component

(00:50):
part of that was generally a leading indicator that was
one of the strongest in a number of years and
a good signal for future output. The services PMI also
increased into expansiony Church Territory for the first time in
nearly two years. Finally, on the growth front, we also
had the Survey of Business Opinion which showed a really
notable improvement with decline and spare capacity and an increase

(01:13):
in realized and expected business activity. I think importantly, the
employment indicators are also recovering off very low levels.

Speaker 2 (01:20):
Right, So obviously the growth story is a good one,
But what about the inflation story?

Speaker 3 (01:25):
Yeah, so this is where the news I guess is
a little bit more mixed. So last week we got
Q four CPI where headline inflation actually accelerated ten basis
points to three point one percent, meaning it did breach
the top of the ibn z's one to three percent banned.
So within that domestic inflation was flat on the quarter,
but ahead of the ibnzv's forecast or most of the

(01:45):
upside surprise came from non tradable inflation, which is influenced
more by offshore prices and clearly that weekly Zealand dollar
weighing on it as well. On the core measure side,
it wasn't quite as bad as the headline figure, but regardless,
the o Z would be a little bit worried about this,
particularly given that growth trajectory I just talked about.

Speaker 2 (02:03):
Now, over across the Tasman we just got the inflation
number for the fourth quarter. How are the two economies?
Do you do you think comparing at the moment.

Speaker 3 (02:10):
Yeah, Look, the Ausio economy really has been quite a standout.
If you look at household spending data that has been
really solid, house prices have continued to stay to strong recovery.
All of that has meant that inflation is inflicting higher.
So today's fourth quarter core measure rose to three point
four percent from three percent. So their economy really didn't
experience the same level of weakness that as did, as

(02:31):
they've benefited from far larger levels of immigration as well
as a less aggressive hiking cycle.

Speaker 2 (02:37):
Do you think that both in Australia and New Zealand
we are now talking about rate hikes.

Speaker 3 (02:44):
Look, domestically, there is the potential for rate hikes in
New Zealand later this year, but it is going to
be very dependent on the duration of this recovery and data.
I think we need to keep in mind also that
we have an election looming later this year, which may
cause household and business investment decisions to slow. We've also
already had to move higher and wholesale rates in New
Zealand and that does influence the degree to which the

(03:06):
RBNZ actually need to increase the cash over in Australia.
I think the risk is far more pronounced. Today's inflation
data marks a third consecutive upside surprise, so coupling this
with stronger employment data last week and better growth data,
it really does increase the risk of more inflation upside
in the future. We're seeing that reflected in market pricing,
which is a seventy five percent chance at the ABBA

(03:28):
hike next week, so that's going to be a really
interesting one.

Speaker 2 (03:30):
Brendan's good to talk to you, Thanks mate, Brendan Larson,
Milford Asset Management.

Speaker 1 (03:34):
For more from News Talks EDB, listen live on air
or online, and keep our shows with you wherever you
go with our podcast on iHeartRadio