Kelly Eckhold: Westpac Chief Economist challenges the Reserve Bank's cuts to the Official Cash Rate

Another spike in inflation won't stop the Reserve Bank from cutting the Official Cash Rate again next month.

Stats NZ is providing its latest quarterly CPI update at 10.45.

Most economists expect it to hit the Reserve Bank's upper limit of three-percent, and some think it will surpass that limit.

But Westpac Chief Economist Kelly Eckhold told Mike Hosking the Reserve Bank still thinks the economy's weak enough to start pushing inflation down.

He says even the Reserve Bank probably won't be too bothered, even if inflation surpasses the three-percent limit.

LISTEN ABOVE

See omnystudio.com/listener for privacy information.

Episode Transcript

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

Speaker 2 (00:16):
Another of those fascinating economic days today with the release
of the Q three inflation read a couple of things
about it. Is it three or above? And number two?
Has it peaked? The last number we had for Q
two to June was two point seven. Kelly Echold, as
West Paxtief economist, of course, is back with us. Kelly morning,
He Mike, what's you call?

Speaker 3 (00:34):
Well, we think it'll be a three percent annual right,
one percent for the quarter. That's more or less what
the Reserve Bank's got unless you go down to the
second decimal place. Key here is is this the peak?
As you pointed out.

Speaker 2 (00:48):
The psychological effect of anything with the three in it?
What's your assessment of that? Do we we're already in
a funk? Does this sort of sinkers?

Speaker 3 (00:57):
Well? I think people already know that the cost of
living has been rising quite significantly. I mean a nice
little factoy there inflations back inside the target change, but
the level of prices is more than twenty percent high
than it doesn't start of the pandemic. So people know
that they've got less money in the back pocket. The
Reserve Bank's kind of interested in do people think that

(01:19):
they need to get a bigger pay rise? Are their
inflation expectations going to rise? So far they seem pretty
senguente about that.

Speaker 2 (01:26):
See, this is the interesting thing for me, isn't it.

Speaker 3 (01:28):
So?

Speaker 2 (01:28):
So say we get to three three point one, whatever
it happens to be, and then we start talking about this,
but it's going to come back. What's the stuff that's
driving it? Though? How's that come back? Your council rates,
your insurance bills, your power bills, they're going up and
continuing to go up.

Speaker 3 (01:43):
Yeah. Well, council rates is obviously the big bug bear,
and that's going to be the big driver of the
CPI this quarter because it is the quarter where it hits.
The good news there is that the amount of rates
increase we've got in for this year is a little
bit lower than it has been in the last couple
of years. But I think you're right to point that
what we really need to see evidence here is that

(02:04):
a whole lot of the services sector prices in the
CPI to come off a bit in line with this
weaker economy, and hence you know, we're really looking to see,
is there sides that core inflation is dropping in a
which case that forecast that inflation heads you know, at
least into the low twos again these few quarters, is
going to be right.

Speaker 2 (02:23):
Yeah, So if the RB are expecting this, do they
look through it as much as they look through anything,
And if they were going to go twenty five, they're
still going to go twenty five. In other words, this
won't spook them.

Speaker 3 (02:33):
Well, I don't expect this to spook them because it's
in their forecast, even if it was a bit higher,
and if the reason was a temporary or one off factor,
I don't think there'll be that bothered because their key
message here is that they think there's enough excess capacity
in economy, which is another word of saying the economy
is weak enough that they can focus on that and

(02:53):
trust that that will bring things back. And you know,
the news we've got on the growth impulse in the
certain fourth quarters hasn't been that encouraging to.

Speaker 2 (03:02):
Be No, indeed, not twenty five and done.

Speaker 3 (03:04):
Do you think, Well, I think they would like to
get everything done before Christmas. So I've been telling clients
that I think they'll be dicing up between twenty five
and fifty just to finish off for Christmas, and then
hopefully next year get the rates to where they are,
leave them there for as long as it takes. Hopefully
it's not very long, but we'll see, all.

Speaker 2 (03:24):
Right, Kelly, nice to talk to you. Appreciate it. Kelly
you Cole, who's the Whishpac Chief Economist.

Speaker 1 (03:27):
For more from News Talks B listen live on air
or online, and keep our shows with you wherever you
go with our podcasts on iHeartRadio