Jarrod Kerr: Kiwibank Chief Economist warns that early OCR increases could be counterproductive

There's division among economists regarding how soon the Reserve Bank should start raising the Official Cash Rate. 

Many now expect the bank to bring forward OCR hikes, with ANZ forecasting three before the election. 

But Kiwibank Chief Economist Jarrod Kerr warns that could be reckless and counterproductive. 

He told Mike Hosking right now we're dealing with more temporary inflation due to higher diesel prices, which should hopefully fall back. 

Kerr says more persistent forms of inflation, like wage and rental inflation, are quite benign at the moment. 

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Episode Transcript

Speaker 1 (00:00):
Well, here we go battle of the bank, say and
said yesterday with they call on three cash rate rises
starting July ending at three percent, ASB beaked to differ
a bit, they start later and higher at three and
a half percent middle of next year, and now kiwibank
ways and with the word I think the word was rickless.
If the RB goes ahead. Jared Doaker is the Qui
Bank chief economist and is with us.

Speaker 2 (00:18):
Jared morning, Good morning.

Speaker 1 (00:20):
So how many how many rises have you gotten over
what period of time?

Speaker 2 (00:24):
We've got hikes starting from February and we've got going
up to three and a half as well.

Speaker 1 (00:29):
So you've got the RB looking through a lot of
stuff this year.

Speaker 2 (00:33):
Absolutely, it's going to take a lot of time to
assess the damage of what we're seeing at the moment.

Speaker 1 (00:38):
But inflation's inflation. If it comes in at a number,
and we'll get several reads this year, obviously, how long
do they look through what is reality in the hope
that they can do something about it next year.

Speaker 2 (00:50):
Well, there's temptary inflation, which is a spike in diesel,
and we kind of hope that that falls back, and
then there's more persistent stuff, you know, way inflation, mental
inflation and all that's quite benign at the moment, Mike.
So we're going through quite a sharp spike in temporary inflation,
and the Reserve Bank targets the medium term.

Speaker 1 (01:12):
Okay, so these secondary things was so in differing with
these other two banks? How firstly, how much of you
all flying blind? How much of this is just playing guesswork? Oh?

Speaker 2 (01:22):
A lot? You know, a lot. It's highly uncertain. The
war in Iran hasn't ended yet, These will play prices
haven't normalized yet. So there's a lot going on and
it is all guesswork. And that's precisely while we're saying,
you know, just chill out, sit there and wait and watch.

Speaker 1 (01:41):
See. I tend to agree with you. Why don't they
agree with you?

Speaker 2 (01:46):
I don't know. I haven't read their research. They must
have been more concerned about these second round in facts.
I was at one of our customers on Monday, large
construction company are struggling to pass these costs. When your
face with a consumer at the other end, the ability
to pass it through is very, very limited.

Speaker 1 (02:08):
And that's what we saw in the retail spending figures yesterday,
wasn't it? I mean yes, spinning went up, just a smitch,
but a big loading went on petrol. You've got one
hundred bucks. You spend what you've got, but you spend
on the stuff that's gone up, and petrol needs is
a necessity. Therefore that's where it goes. And so you
don't have more money to suddenly spend.

Speaker 2 (02:25):
Do you precisely? Absolutely. You speak to anyone who owns
a petrol station, they'll tell you that people in good
times come in, they fill up, they pay for the gas,
they buy a coffee, they buy a muffin at the
moment they go and they pay for the gas, they
buy nothing else. So they immediately cut discretionary stuff. And
we're seeing that in our car as well. You're spending

(02:47):
more on petrol, you're having to spend less on clothing
and putwear.

Speaker 1 (02:50):
And that's the reality. How much of it's psycho I mean,
you saw the numbers out of Australia yesterday. They're freaking
out like we are. How much of it is We're
in a funk. This is the end of the world again,
and so I'm not going to spend anything. I've convinced
myself times are bad.

Speaker 2 (03:06):
Oh, a lot of it's that, but you know, people
are fronting up to the petrol station and having to
pay a lot more. So there's a physical higher price
that they're having to pay. And of course there's uncertainty
is around how this war in Iran plays out, so
that is also paralyzing businesses and that kills growth. Mike,

(03:27):
you know, as soon as you start thinking like that,
you postpone that investment decision, you postpone that extra higher
and that really does, you know, cause the economy to
go backwards.

Speaker 1 (03:38):
They must know that in Wellington at number one or two,
whatever their addresses, the terrorists mustn't think. They must know that.
They can't come out and go, hey, there's twenty five points.
Folks enjoy that. I mean, they can't do that, can they?

Speaker 2 (03:50):
No? I don't think they can, and I don't think
and Ruman has signaled anything like that. I think she's
been very good since she started in December. She's played
a very tidy game. She's been very balanced, very transparent.
There's no knee jerk reaction coming out of the Reserve Bank.

(04:10):
And when you cross the road on the terrace, Treasury
also know that they're going into a really tough budget
yet again.

Speaker 1 (04:18):
All right man, appreciate it very much. Jared kerm ki
we bank cheap economist, so pick your banker. I highlight
jaredy was right for most of last year when many
of the others were for more from the Mic Asking Breakfast.

Speaker 2 (04:30):
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Speaker 1 (04:31):
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