July 22, 2025 • 5 mins
Concerns have been raised among economists as inflation data suggests things may not be as on track as they seem.
Inflation has hit 2.7 percent, with big food increases led by massive hikes in food prices.
HSBC chief economist Paul Bloxham explains what this could do for the Reserve Bank's outlook going foward.
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Speaker 1 (00:00):
And Paul Bloxham, hspci's chief economist, is with us. Hello,
Paul good A, what do you make of our inflation
print yesterday?
Speaker 2 (00:07):
Well, I think that it was a little bit lower
than the market had expected, which is a positive. So
you know, it's a little bit below where the market
was fearful and a touch above where the RBNZ was forecasting.
I think it still leaves the door open for the
rben Z to deliver a little bit more easy cut
their policy rate, and that's our central case. We think
at their next meeting they're likely to be able to
(00:28):
convince themselves that inflation still contained enough to allow them
to lower interest rates a bit further. But I mean,
we've got to keep in mind also it has picked
up a little bit. It's, you know, sitting at two
point seven. It's up a little bit from the low
point it had reached and so on. So we think
they'll cut again, but we don't think there's going to
be a lot more cuts to come. I mean, we
think the Arbenz is getting nearer to the end of
its easing phase.
Speaker 1 (00:49):
See John Key, former Prime Minister, over the weekend, called
for one hundred basis points and cuts. What do you
think of that?
Speaker 2 (00:55):
Well, I think the inflation being still above the midpoint
of the target band and actually picking up a little
bit recently means that we need to be careful about
how much more easing is delivered. I think, you know,
I think you'd want to say, well, the Arbenz targets
one through three percent. They target try to get a
two two percent inflation consistently, and they're sitting at two
point seven, So it's not convincing. I don't think that
(01:18):
they should be delivering a lot more easing rapidly. I
think the growth story is a little bit more nuanced
at the moment. Some of the timely indicators have weakened
a bit, but we're I mean, we're still of the
view actually that New Zealand's got positives and factors that
are going to lift growth. One of them is the
fact that they've already cut interest rates by two hundred
and twenty five basis points. And the other one is
(01:38):
the dairy prices are high and that's boosting agricultural incomes
and so on. So we think that's going to feed
through to a still a continued lifting growth in New Zealand,
and so I'm not sure the case is strong for
a substantial delivery of lots of cuts from here.
Speaker 1 (01:52):
You don't buy the argument that the inflation that we're
seeing at the moment is very much temporary and will
fall back later on, there by justifying the cuts.
Speaker 2 (01:59):
No. I think if if you look at the components
of what's going on with inflation, you've still got non
tradables inflation that's holding up reasonably well, So the domestic
part of inflation that's holding up reasonably well. And although
you know that the pickup you saw in the actual
print for the quarter was mostly about food prices, so
that might prove to be temporary, I think you'd still
be a bit cautious about whether you'd be convinced that
(02:20):
inflation was going to continue to fall towards towards two percent.
I think the other thing is this is not the
only survey that you can look at. You can look
at the measures of inflation expectations, the surveys where they
ask people what they think inflation's going to be in
the future, and those have all started to pick up
a little bit as well. So I think there's enough
indications to suggest that inflation's not back at the target
(02:43):
quite yet it's still in the upper part of the
target band, and it would, I think mean that you
have to be cautious about how much more monetary using
you deliver, or at least how quickly you deliver it.
So I think they're going to get over the line
for another cut, but I think taking it a bit
more carefully and a bit more slowly at this point
is important because inflation is not is in the upper
(03:03):
part of the target ban.
Speaker 1 (03:04):
Fairpoint. Now to the RBA, we were a little bit
surprised when it held the rates a couple of weeks ago,
but now we've got the meeting minutes and it's shit
a little bit more light.
Speaker 2 (03:11):
Right.
Speaker 1 (03:11):
This comes down to the employment rate, doesn't it.
Speaker 2 (03:14):
That's right, So, I mean, I think the RBA on
the day even they was a surprise for the market.
But they said, and the Governor had said at the time,
that it's about timing rather than direction. I issue was
saying the board wasn't quite convinced that they should deliver
a rate cut at that point in July, but they
still expect that they'll be lowering interest rates further. And
I think the minutes again just give a bit more
(03:35):
clarity around that was the discussion that was had. It's
not that they don't think that they need to do
a bit more easy, it's just that they want to
take a cautious approach to delivering that that easing. And
I think the other thing to keep in mind is
since then, we've had labor market numbers that were softer,
that were weaker, the unemployment rate actually rose. So I
think we're likely to see as well that the RBA
(03:55):
probably will probably deliver another rate cut come August as
a part of their cautious approach to delivering easing for
the economy.
Speaker 1 (04:02):
Paul, I have a text question for you, says, hither
could you please ask Paul Bloxham with the New Zealand
we'll ever get the rock star economy back.
Speaker 2 (04:09):
Ah, that's a great question. And look, I would hope
like I hope, so, I mean, of course it is.
I mean it would be great if New Zealand could
return to that former glory that we described. I described
it back in twenty fourteens. Is over ten years ago
now that you could get there, And I think the
main things you know you need to look for. Yes,
the dairy story was really strong back then and that
was that's one that's turned more positive more recently. That
(04:32):
the migration story was strong as well, and that's something
that you need to look at as well. But more
more importantly, I guess you need to look at the
reform agenda and making sure that you can attract more
foreign investment. And I think that's what policymakers asked. I
think to look more, you know, taking a bigger, a
stronger approach towards and if that starts to deliver, it
could really lift New Zealand's growth prospects. We're very optimistic.
(04:53):
I think I've said this to you before that you know,
we are at the top of consensus in terms of
thinking about New Zealand's growth for this year and we
think growth is likely to be in an upswing. Will
it be a rock star? Well, we'll just have to see.
Speaker 1 (05:05):
Here's hoping.
Speaker 2 (05:06):
Paul.
Speaker 1 (05:06):
Thanks very much as always, Paul Bloxhom, HSPC Chief Economists.
Speaker 2 (05:10):
For more from Hither Duplessy Allen Drive, listen live to
news talks.
Speaker 1 (05:14):
It'd be from four pm weekdays, or follow the podcast
on iHeartRadio.
And Paul Bloxham, hspci's chief economist, is with us. Hello,
Paul good A, what do you make of our inflation
print yesterday?
Speaker 2 (00:07):
Well, I think that it was a little bit lower
than the market had expected, which is a positive. So
you know, it's a little bit below where the market
was fearful and a touch above where the RBNZ was forecasting.
I think it still leaves the door open for the
rben Z to deliver a little bit more easy cut
their policy rate, and that's our central case. We think
at their next meeting they're likely to be able to
(00:28):
convince themselves that inflation still contained enough to allow them
to lower interest rates a bit further. But I mean,
we've got to keep in mind also it has picked
up a little bit. It's, you know, sitting at two
point seven. It's up a little bit from the low
point it had reached and so on. So we think
they'll cut again, but we don't think there's going to
be a lot more cuts to come. I mean, we
think the Arbenz is getting nearer to the end of
its easing phase.
Speaker 1 (00:49):
See John Key, former Prime Minister, over the weekend, called
for one hundred basis points and cuts. What do you
think of that?
Speaker 2 (00:55):
Well, I think the inflation being still above the midpoint
of the target band and actually picking up a little
bit recently means that we need to be careful about
how much more easing is delivered. I think, you know,
I think you'd want to say, well, the Arbenz targets
one through three percent. They target try to get a
two two percent inflation consistently, and they're sitting at two
point seven, So it's not convincing. I don't think that
(01:18):
they should be delivering a lot more easing rapidly. I
think the growth story is a little bit more nuanced
at the moment. Some of the timely indicators have weakened
a bit, but we're I mean, we're still of the
view actually that New Zealand's got positives and factors that
are going to lift growth. One of them is the
fact that they've already cut interest rates by two hundred
and twenty five basis points. And the other one is
(01:38):
the dairy prices are high and that's boosting agricultural incomes
and so on. So we think that's going to feed
through to a still a continued lifting growth in New Zealand,
and so I'm not sure the case is strong for
a substantial delivery of lots of cuts from here.
Speaker 1 (01:52):
You don't buy the argument that the inflation that we're
seeing at the moment is very much temporary and will
fall back later on, there by justifying the cuts.
Speaker 2 (01:59):
No. I think if if you look at the components
of what's going on with inflation, you've still got non
tradables inflation that's holding up reasonably well, So the domestic
part of inflation that's holding up reasonably well. And although
you know that the pickup you saw in the actual
print for the quarter was mostly about food prices, so
that might prove to be temporary, I think you'd still
be a bit cautious about whether you'd be convinced that
(02:20):
inflation was going to continue to fall towards towards two percent.
I think the other thing is this is not the
only survey that you can look at. You can look
at the measures of inflation expectations, the surveys where they
ask people what they think inflation's going to be in
the future, and those have all started to pick up
a little bit as well. So I think there's enough
indications to suggest that inflation's not back at the target
(02:43):
quite yet it's still in the upper part of the
target band, and it would, I think mean that you
have to be cautious about how much more monetary using
you deliver, or at least how quickly you deliver it.
So I think they're going to get over the line
for another cut, but I think taking it a bit
more carefully and a bit more slowly at this point
is important because inflation is not is in the upper
(03:03):
part of the target ban.
Speaker 1 (03:04):
Fairpoint. Now to the RBA, we were a little bit
surprised when it held the rates a couple of weeks ago,
but now we've got the meeting minutes and it's shit
a little bit more light.
Speaker 2 (03:11):
Right.
Speaker 1 (03:11):
This comes down to the employment rate, doesn't it.
Speaker 2 (03:14):
That's right, So, I mean, I think the RBA on
the day even they was a surprise for the market.
But they said, and the Governor had said at the time,
that it's about timing rather than direction. I issue was
saying the board wasn't quite convinced that they should deliver
a rate cut at that point in July, but they
still expect that they'll be lowering interest rates further. And
I think the minutes again just give a bit more
(03:35):
clarity around that was the discussion that was had. It's
not that they don't think that they need to do
a bit more easy, it's just that they want to
take a cautious approach to delivering that that easing. And
I think the other thing to keep in mind is
since then, we've had labor market numbers that were softer,
that were weaker, the unemployment rate actually rose. So I
think we're likely to see as well that the RBA
(03:55):
probably will probably deliver another rate cut come August as
a part of their cautious approach to delivering easing for
the economy.
Speaker 1 (04:02):
Paul, I have a text question for you, says, hither
could you please ask Paul Bloxham with the New Zealand
we'll ever get the rock star economy back.
Speaker 2 (04:09):
Ah, that's a great question. And look, I would hope
like I hope, so, I mean, of course it is.
I mean it would be great if New Zealand could
return to that former glory that we described. I described
it back in twenty fourteens. Is over ten years ago
now that you could get there, And I think the
main things you know you need to look for. Yes,
the dairy story was really strong back then and that
was that's one that's turned more positive more recently. That
(04:32):
the migration story was strong as well, and that's something
that you need to look at as well. But more
more importantly, I guess you need to look at the
reform agenda and making sure that you can attract more
foreign investment. And I think that's what policymakers asked. I
think to look more, you know, taking a bigger, a
stronger approach towards and if that starts to deliver, it
could really lift New Zealand's growth prospects. We're very optimistic.
(04:53):
I think I've said this to you before that you know,
we are at the top of consensus in terms of
thinking about New Zealand's growth for this year and we
think growth is likely to be in an upswing. Will
it be a rock star? Well, we'll just have to see.
Speaker 1 (05:05):
Here's hoping.
Speaker 2 (05:06):
Paul.
Speaker 1 (05:06):
Thanks very much as always, Paul Bloxhom, HSPC Chief Economists.
Speaker 2 (05:10):
For more from Hither Duplessy Allen Drive, listen live to
news talks.
Speaker 1 (05:14):
It'd be from four pm weekdays, or follow the podcast
on iHeartRadio.
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