Nick Tuffley: ASB Chief Economist ahead of the latest inflation numbers

Cautious optimism from economists ahead of the latest inflation numbers. 

Stats NZ will deliver its latest inflation update on the year to December at 10.45 this morning. 

Many economists expect it to be slightly down, but ANZ predicts it will remain unchanged and BNZ is forecasting a slight rise. 

ASB Chief Economist Nick Tuffley told Ryan Bridge we need to still be cautious as domestic inflation remains relatively high. 

He says for inflation to stay around 2% the domestic rate needs to come down. 

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Episode Transcript

Speaker 1 (00:00):
Inflation for the December quarter is coming out well at
about ten forty five. The Reserve Bank reckons it'll be
two point one percent annualized minus an Z. It's the
same position basically for all of the major banks. Nick
Touughley is asb's chief economics.

Speaker 2 (00:15):
He's with us this morning. Ni, good morning, Good morning.
Tell me what are you picking?

Speaker 3 (00:20):
We're Mason, I'm boring after what you just said, but
we're picking two point one percent, So that means inflation
is sitting basically smack bang in the middle of the
Reserve banks target.

Speaker 2 (00:30):
Should we stop caring about inflation?

Speaker 3 (00:32):
Then? I think the thing is that you always have
to care about inflation. I think we've had we had
a long period of decades where we got sort of
we took love inflation for granted, and we've realized that
fation send it away on you if you don't keep
an eye on it, and it is quite costly to society.

Speaker 2 (00:48):
When you got inflation, it's given us a good whipping.

Speaker 1 (00:50):
But now that it's in the zone, can we you know,
can we stop the intense focus and scrutiny.

Speaker 3 (00:58):
Yeah. I think for most people they'll start getting a
bit more relaxed and they'll kind of forget all bit
exactly what the inflation inflation rate is. But we do
still need to be a bit cautious this year because
we do have a situation where the domestic inflation is
still relatively high and the Reserve Bank is going to
want to see that come down over the course of
this year, which is what we're expecting and what we

(01:18):
have been seeing. But for inflation to stay around two percent,
that domestic part needs to come down because we can't
keep relying on outright falls and things like fuel prices
and weakness in food prices, for example, to keep things low.

Speaker 1 (01:32):
That's the stuff like our insurance, our rates, our rents.
It's the stuff that's not influenced by international factors. What
are you picking will happen with that today?

Speaker 3 (01:41):
Well, that's been around five percent on an annual basis
for expecting somewhere around about four and a half percent.
So there you go. That's another half percent down on that,
and that's helping offsets, you know, just some rebound in
the cost of those sort of more traded goods because
they've actually been really wet. But it's done most of
the work getting inflation down to a level, But we
can't rely on outright declines overall and those sort of goods.

(02:04):
So they're going to be lifting a little bit over
the course of this year. So we're going to see
the mix of inflation change. But what we want to
see is our domestic but going back to something a
bit more normal, in keeping inflation anchored around two percent.

Speaker 1 (02:17):
Not relying on oil to bring us down. Nick, what
about the ocr February nineteenth is the meeting from the
Reserve Bank and everyone saying, oh, it looks like we'll
probably have half a percent if you look at the
services sector data we had yesterday, the job ads.

Speaker 2 (02:30):
Data, Should we not be going bigger?

Speaker 3 (02:33):
I think there Reserve Bank will be comfortable going with fifty.
I mean, most of the debates it's been around will
they go back to doing twenty five point moves or fifties?
And the Reserve Bank basically climbed on top of the
sky tower and sort of shouted it's probably going to
be fifty guys, and I think that's what they will do.
I think going further than that, we're at a point
now where the Reserve Bank, beyond February will be starting

(02:54):
to think about Okay, how much further do we really
need to go? We've done a lot of cuts. We
haven't quite seen the full effects of it. Have we
done enough in wanting to think more about fine tuning
how much it needs to go? So I don't think
seventy five. We haven't seen the reserve thing really hit
the panic button on the way down to that extreme.
They had cut at a fast clip recently, and that's

(03:15):
what we're expecting.

Speaker 2 (03:16):
This month certainly felt slow and steady, hasn't it.

Speaker 3 (03:18):
Nick?

Speaker 2 (03:18):
Thank you Nick Tuffley asb's TV economist.

Speaker 1 (03:21):
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