Cameron Bagrie: Independent Economist on the division between economists over whether the Reserve Bank should raise the OCR

Economists are divided over how fast the Reserve Bank should raise the Official Cash Rate. 

ANZ has already picked three consecutive hikes in July, September, and October, while Westpac says it’s becoming more of a possibility next month, but is more likely in September.  

On the hand, Kiwibank believes raising the rate multiple times before the election would be reckless. 

Independent Economist Cameron Bagrie told Ryan Bridge there’s a case for raising the OCR in May – a pre-emptive strike against inflation. 

He says that if they feel the need to go, they're better off going early as if they leave it later and let inflation get a bit embedded, they’ll have to take the OCR higher to compensate.  

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Episode Transcript

Speaker 1 (00:00):
But if a cat fight. Speaking of between the banks
on what's next for the OCR A and Z picking
three hikes starting July. Westpac thinks one could come as
soon as May. Kiwibank's warning, push too hard, you risk
tipping the economy into recession. Cameron Baggery Independent Economists with
us this morning. Hey Cameron, good to have you on
the show. So peck aside Cameron, whose position is more realistic.

Speaker 2 (00:22):
So I I put an article up on Business test site.
It was a case for a May hike. You know,
the Reserve Bank said, you're watching core inflation, they're watching
inflation expectations. If you look at the December quarter, core
inflation already ticked up. If you look at inflation expectations,
they've started to move up slightly, and we seem more
out of that data in the comings to a month.

(00:43):
Then you have the case for a mayhip. Now that's
what's called a bit of a preempt to stripe. We're
not going to like it, but we don't like inflation
rating as well. So it's a bit of a double
ed sword for the Reserve Bank to.

Speaker 1 (00:52):
Be fair too. A and Z they also said that yeah,
it might go up sooner, but it wouldn't go as
high as they'd previously said either.

Speaker 2 (01:00):
Well, there's the old adage one you're a stitch in
time by save nine, and I think that comes to
the play here. If you feel that you need to go,
you're better off to go early. Is if you go early,
you're not this thing on the head. If you go
late and you're let inflation get a little bit and better,
then you're going to have to take the official care
straight an awful lot of hiasis. Strategically, you're what aims
you're to saying. Here, you go early and you're going

(01:20):
to have to go less hard. I think makes a
lot of sense.

Speaker 1 (01:23):
Arbian did said that they would look through short term
inflation then didn't matter. I spoke to Paul Conway. He said,
doesn't matter if it's four, five, six, whatever percent, we'll
look through it short term. Are you saying that the
medium to long term inflation number is now looking like
it warrants change.

Speaker 2 (01:40):
Well, if you go back and have a look at
the December quarter inflation numbers, which is called dated, but
it gives us a bit of a benchmark. Poorer inflation,
which strips out food and energy already started to tick
up very early in this economic recovery. And this is
kindly supposed to the still got an awful lot of
XTS capacity. You wouldn't expect to see core inflation tick

(02:02):
up this early in the economic recovery. So if we
see another pickup in core inflation once again strips out fuel,
strips out energy, electros, strips out food as well, then
you've got the case that's sitting there on the table
for the special cash right to move. It's not going
to move high. It's going to move to what's called

(02:22):
a less rescriptive setting. You know, people need to remember
that the official casht rate of the mine there's two
point two five percent. The Reserve Bank caused the neutral
official cash rate. That's where they've got neither the foot
on the accelerate or the break around three. So if
you take it from two point twenty five to two
point five or as angel to say, in back to three,
you're merely taking the foot off the accelerator. It's not
as though you're jumping on the brake.

Speaker 1 (02:44):
Yeah, it's going bloody low to low. This is not
the Quevy Bank makes the point, this is not demand inflation.
This is supply inflation via oil. Does it matter where
it comes from?

Speaker 2 (02:54):
Well, yes, But the problem is is that the Reserve Bank,
the governor has made it pretty clear and she delivered
an excellent speech a couple of weeks ago where they said, look,
they are going to look through the immediate impact of
a rise in fuel prices. They're going to look through
the immediate impact of what's called the indirect consequences of inflation,
the likes of increases and transport costs on food inflation,

(03:17):
but they're going to jump on what's called secondary inflation.
Now do we see secondary inflation? You look at what's
called core inflation that strips out fuel with strips out food.
And as I said, what we've already seen is that
core inflation has already started to pick up. So if
we see the March inflation figures and we see a
further tick up in that core inflation measure, I think
there is a case for going and may Now. I

(03:39):
think one of the reasons that Ang has gone with
Lie is that they think one month March is not
going to be enough. They think, I suspect, are you
more likely see within the June figures? And the Bserve
Bank would like a little bit of two quarter qualification
in regard to what's going on here, but your key
eventks sort of view that you jump on this early,

(04:00):
there's not the watch to the call. Well, there's a costy'
not jumping on the saying word up front as well.

Speaker 1 (04:04):
Cameron Begory Beggary Economics.

Speaker 2 (04:07):
For more from Early Edition with Ryan Bridge.

Speaker 1 (04:09):
Listen live to News Talks it'd be from five am weekdays,
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