Mike Jones: BNZ Chief Economist on inflation being expected to hit 4% in latest figures

There's cautious optimism from economists that inflation will start falling after today.  

Stats NZ is releasing CPI figures for the June quarter later this morning, which is expected to largely reflect the impact of the Iran war, along with other cost pressures like rates and utility costs. 

Economists expect it surge to somewhere around 4%. 

BNZ Chief Economist Mike Jones told Mike Hosking that based on their forecasts, this should be the peak.  

He says next quarter BNZ predicts inflation to come down to 3.8%, before it tails away to be within the Reserve Bank's band in the middle of next year. 

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Episode Transcript

Speaker 1 (00:00):
Another of those really interesting data days where we get
the insight into the war and it's impact on New
Zealand and so inflation for Q two. So in other words,
April May June consensus is about four and more importantly,
it should have been the peak. Mike Jones Benz's two
for economists back with this, Mike, morning to you.

Speaker 2 (00:15):
Good morning.

Speaker 1 (00:16):
So the four point one that you're calling, how much
of it's petrol and how much of its cost plus
accounting from councils and electricity companies.

Speaker 2 (00:25):
Well, certainly this quarter it's just about all about petual.
About seventy percent of increase just for the quarter is fuel.
But you know, if you step back, of course, you've
got those wider yes, costs push inflation pressures simmering away.
So those core measures still running a bit high two
and a half to three percent, of which, yes, there

(00:45):
is certainly a component coming through or from those administered costs,
rates and electricity and so forth.

Speaker 1 (00:50):
So no matter what the number is today, can you
confidently say that's the worst it's going to get? I mean, sure,
to the wall reigniting again, forget that for a moment,
but in general terms, was as bad as it got
or we can't say that.

Speaker 2 (01:04):
Well, if you take our forecast as gospel, which not
always advisable, this will be the peak. I mean, we've
got inflation next court in Q three coming down to
three point eight, and then it tails away through the threes,
gets back in the reserve banks band about the middle
of next year. So yes, technically we think this will
be the peak. Still highlights for me, though it's going

(01:26):
to take a while for inflation to normalize. In fact, again,
if our forecasts are close to the truth, it would
or would have been above the top of that target
range for eighteen months by the time we get through
to it to the middle of next year.

Speaker 1 (01:39):
Yeah. But having said that, we to a degree dodgable
at some of those countries who produce monthly inflation rates.
We've not seen what the pessimists thought we would see
inflation wise. That's correct, isn't it.

Speaker 2 (01:50):
Yeah, I think that's right. The peak hasn't been as
high as we might have feared, largely linked it to
oil prices not going as high as as people were
worried about in the early stages of the war.

Speaker 1 (02:00):
Yeah, but then, of course we don't know what's happening
right now, as of this morning, as of tomorrow, as
of the next day, so who the hell knows what
we're going to be dealing with next.

Speaker 2 (02:08):
Yeah, well, that's right. We're sort of back in this environment,
of course, which is unfortunate, where we're just looking across
to them at least and trying to not do daily
authdts of CPI forecasts, which I think for today we'll
just concentrate and tension more on those measures of underlying
and core inflation. I mean, those are going to be
the bits I think that will make a difference for
the Reserve Bank and what they're thinking.

Speaker 1 (02:29):
Good stuff, Mike, nice to talk to you. Good to
get your expertise Mike Jones, be and the Cheap Economists
this morning.

Speaker 2 (02:33):
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