Mary Jo Vergara: Kiwibank senior economist on what latest CPI data says about the economy

Experts have offered reassurance our high inflation isn't a sign of things to come.

Stats NZ figures show the Consumers Price Index reached 2.7 percent for the year to June.

Inflation fell to just 2.2 percent last year - from 7.3 percent three years ago - but has been rising since.

Kiwibank senior economist Mary Jo Vergara says this is likely a spike, so should go back down.

"If you look at domestic inflation, that's really trending down - so I don't think this is going to be something that is persistent." 

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Episode Transcript

Speaker 1 (00:00):
Inflation has climbed ever so slightly. It's coming at two
point seven percent, which is actually dangerously closed to the
top end of the target bank you know, set by
the rbnzet of three percent, but it's coming less than
we expected at two point eight two point nine. Mary
Joe Vigara is a senior economist at KIWI Bank. Mary Joe, Hi,
how are you well?

Speaker 2 (00:17):
Thank you? Do you think this is temporary?

Speaker 3 (00:20):
Yeah? I don't think there is really anything in today's
report to suggest that this kind of bout of high
inflation will be persistent. It's not like what we score
during you know, twenty twenty. There's the economic undercurrent, so
it's still very weak, and you look at domestic inflation
that's really trending down. So I don't think this is
going to be something that's persistent. It should be a spike,

(00:41):
which means goes up and it goes back.

Speaker 2 (00:42):
Down, brilliant. So we're still going to get that OCR cut,
are we next month?

Speaker 3 (00:47):
I think it does. I think it opens the door
quite quite firmly to a road cut in August. There's
just nothing in the data to suggested this inflation that
will be persist. Don't actually flow through to inflation expectations.
All of that being contained, I think the economy needs
that rate relief and this really does open the door

(01:08):
for a rate cut next month.

Speaker 2 (01:10):
Okay, so you guys have got August locked in? What
are the rate cuts? Are you guys picking?

Speaker 3 (01:14):
We still think we need the cash rate to be
firmly in that stimulatory territory, so we think the cash
rates should go down to two and a half percent.
That's what we're forecasting. Again, we've had so much easing,
but all those interest rates sensitive sectors, construction, all of
them are still quite weak, which just points to the
fact that there needs to be even more relief. So
there's been a lot of easing done. We still expected

(01:36):
to turn around, but to actually secure and guarantee your
recovery when you're a broad based economic recovery, we need
more stimulus from those a.

Speaker 1 (01:44):
Bank And how confident are you that we are going
to have a good economic recovery underway before election next year?

Speaker 3 (01:51):
It's just it's the way monetary policy works. You know,
there's a Banksy's they've eased interest rates quite a lot.
Two hundred and twenty five basis point that's been you know,
we've seen interest rates retail rates for quite a lot.
There's a wave of big wave of mortgage refixing coming
and we should see household disposable incomes increase and that
should flow through to more spending. But we just need

(02:14):
a little bit more to actually secure that recovery you've seen,
you know, recoiling out of a really deep recession from
last year, and just to prevent any further unnecessary, you know,
damage to the lave market, we really need to have
more steneralists come come through some there is a bank marriage.

Speaker 2 (02:30):
I thank you Mary Jovigara Kiwibank senior economists.

Speaker 3 (02:34):
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