November 27, 2024 • 7 mins
The Reserve Bank remains concerned about domestic inflation as it points to more OCR cuts next year following the latest 50 basis point cut.
Inflation is now at 2.2%, with weak global demand pushing tradeable inflation down to -1.6%.
But non-tradeable inflation —things like insurance, rates, power and rents— remains at 4.9%.
Reserve Bank Assistant Governor Karen Silk told Mike Hosking that needs to be brought down to just under 3%, which is where it's historically sat.
She says this type of inflation, which is less responsive to monetary policy, remains persistent.
LISTEN ABOVE
See omnystudio.com/listener for privacy information.
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
Back to the Reserve Bank and the state of the economy.
Inflation partly under control, non tradea will still a problem.
Fifty point cuts another one likely in February, on our
way to a neutral number of about three percent by
the middle of next year. The RB's Associate Governor, Karen
Silk is with us. Good morning, Good morning, mate. I
was surprised to us surprised. We had a lot of
things yesterday in the press conference, the seventy five points,
(00:20):
how little consideration was given to that.
Speaker 2 (00:25):
Yeah, Mike, we consider all potential interest rate changes, but
we quickly settled on fifty basis point cut being the
most appropriate fit at this point to support both our
primary inflation and secondary obviously our secondary objectives, and it's
all about charting a steady course of action and around
(00:48):
what best enables that. The fifty point basis recognizes that
wonderful news inflation headline inflation is back within the target range,
and we have a pretty good level of confidence about
that remaining there. But it's got under the over in
terms of how we've managed to get there. On the
(01:10):
one hand, you've got weak global growth, lower inflation off
shore that's leading to lower import prices, which is good news.
On the other hand, domestic inflation, that's well, that's coming down,
that's still sitting outside of the target range, and so
we're still you know, we're still looking for that to
(01:30):
come back at least to the top end of the range,
which is where it's historically sat.
Speaker 1 (01:36):
Do you think it will because Transpower were given clearance
the other day to raise six billion dollars, all of
which will be inflationary. As long as that's going on,
then you get insurance, then you get the councils. As
long as that's going on, non tradable's going nowhere fast,
is it?
Speaker 2 (01:50):
Yeah? Yeah, Look, there's definitely a mix of things. There
is some persistence in domestic inflation from you know, what
we would recall what would refer to as items that
are a little less responsive to monetary policy, and you know,
but there are also some things in there that are
(02:12):
just slow moving, and you know, rents is a good
example of that. But as you say, there are things
like insurance and rates and so you know, those are
kind of things that will tend to also hold domestic
inflation towards that higher end of the range as well.
Speaker 1 (02:30):
Four point twenty five fifty all things being equal, coming
in February years suit, you got one hundred and twenty
five points to get rid of by the middle of
next year, So that's another fifty in twenty five. Is
that roughly how it will play out.
Speaker 2 (02:41):
Yeah. So what we've indicated in our track based on
the economic conditions that we're looking at today and our
forecast for next year, we're looking for more carts earlier
in the earlier part of next year, and then are
gradual tapering off over the years.
Speaker 1 (02:58):
When you talk about productivity as you did yesterday, how
worried are you about the brain train?
Speaker 2 (03:04):
Oh? Yeah, migrations definitely up.
Speaker 1 (03:10):
And yeah, but the problem is they're all leaving and
fewer and fewer people are coming in, and the chances
are we're going to be going backwards. None of that
can be good for the economy, can it. Yeah.
Speaker 2 (03:21):
So there's two things. You know, you'll have seen that
there's a we lowered our growth outlooks for the economy.
Speaker 1 (03:31):
Is that because of that, By the way.
Speaker 2 (03:33):
There's truths there well population growth, So we lowered our
estimates of future population growth sitting in there, so that
has some impact. The second impact to it was as
our assessment of productivity, and New Zealand's productivity levels are low.
We have businesses that tend to focus on hiring labor
(03:55):
rather than doing the upstrame investment in capital that may
you know that will help help us do things quicker
and faster. When you have low productivity levels, your potential
growth is lower.
Speaker 1 (04:09):
So that is what The other driver are those two
things that you can't daw bone. You wish you could,
but you can't. So one is the productivity. We've had
this discussion for decades in this country. We were just
no good at it. The other one Adrian reference getting
money out of housing and into something else that doesn't
happen either. Are you frustrated by that?
Speaker 2 (04:28):
I think most of New Zealanders should be frustrated by that.
Mike productivity. There are things New Zealand can do about that.
A lot of those things don't fit within the Reserve
Banks wheelhouse. You know, there are certainly things that need
to happen to think about, improvement of access to capital,
improvements in willingness for businesses to adopt the pace of technology, faster,
(04:57):
investment in R and D, all those good things. Education.
We need our education up all of those things will
drive that's outside of our outside of our wheelhouse house prices. Look,
interest rates do impact on that. We are forecasting a
bounce in house prices through next year off the back
(05:19):
of lower interest rates, but we're not expecting that to
be a significant growth story moving forward. There are things
that initiatives that the government's talking about which will increase
there creates the ability to impress the supply of housing.
We definitely need to see that to stop that cyclical case.
(05:39):
And on our side, the introduction of depth and some
ratios sure that over time helps move the cycle right
as well.
Speaker 1 (05:49):
I've never talked to you before, so it's an apt
time to ask the question. Given that we've had three recessions,
most likely three recessions in two years, do you carry
personal responsibility and feel bad for what you've done to
this country?
Speaker 2 (06:02):
Do I feel bad? Look, the best thing that we
can do is ensure that there's price stability in this economy.
So low stable inflation is the best thing that we
can do for economic wellbeing. Monetary policy has been proven
to be the best thing to support that, and that
is meant that we have had to undertake actions through
(06:25):
restriction of monetary policy to get ourselves back will to
get New Zealand back into a position we have low
stable inflation.
Speaker 1 (06:33):
You're giving me the reserve bank line, Karen, I'm talking
about all the other reserve banks that haven't had three recessions.
You guys have cocked it up worse than others. Does
that make you feel bad?
Speaker 2 (06:42):
I don't think we have cocked it up, Mike. I
think what we've done is respond to the conditions that
we have. There are things that are different about this economy.
If you want to compare us to the US, the
big difference between New Zealand and the US is our
productivity levels results. We can do things. We can grow
without creating capacity pressures which lead to inflation. So we're
(07:07):
responding to the conditions that we have here in New Zealand.
Speaker 1 (07:10):
Appreciate your time, Karen Silk, who is the Associate Governor
of the Reserving For more from the My Asking Breakfast,
listen live to news talks that'd be from six am weekdays,
or follow the podcast on iHeartRadio.
Back to the Reserve Bank and the state of the economy.
Inflation partly under control, non tradea will still a problem.
Fifty point cuts another one likely in February, on our
way to a neutral number of about three percent by
the middle of next year. The RB's Associate Governor, Karen
Silk is with us. Good morning, Good morning, mate. I
was surprised to us surprised. We had a lot of
things yesterday in the press conference, the seventy five points,
(00:20):
how little consideration was given to that.
Speaker 2 (00:25):
Yeah, Mike, we consider all potential interest rate changes, but
we quickly settled on fifty basis point cut being the
most appropriate fit at this point to support both our
primary inflation and secondary obviously our secondary objectives, and it's
all about charting a steady course of action and around
(00:48):
what best enables that. The fifty point basis recognizes that
wonderful news inflation headline inflation is back within the target range,
and we have a pretty good level of confidence about
that remaining there. But it's got under the over in
terms of how we've managed to get there. On the
(01:10):
one hand, you've got weak global growth, lower inflation off
shore that's leading to lower import prices, which is good news.
On the other hand, domestic inflation, that's well, that's coming down,
that's still sitting outside of the target range, and so
we're still you know, we're still looking for that to
(01:30):
come back at least to the top end of the range,
which is where it's historically sat.
Speaker 1 (01:36):
Do you think it will because Transpower were given clearance
the other day to raise six billion dollars, all of
which will be inflationary. As long as that's going on,
then you get insurance, then you get the councils. As
long as that's going on, non tradable's going nowhere fast,
is it?
Speaker 2 (01:50):
Yeah? Yeah, Look, there's definitely a mix of things. There
is some persistence in domestic inflation from you know, what
we would recall what would refer to as items that
are a little less responsive to monetary policy, and you know,
but there are also some things in there that are
(02:12):
just slow moving, and you know, rents is a good
example of that. But as you say, there are things
like insurance and rates and so you know, those are
kind of things that will tend to also hold domestic
inflation towards that higher end of the range as well.
Speaker 1 (02:30):
Four point twenty five fifty all things being equal, coming
in February years suit, you got one hundred and twenty
five points to get rid of by the middle of
next year, So that's another fifty in twenty five. Is
that roughly how it will play out.
Speaker 2 (02:41):
Yeah. So what we've indicated in our track based on
the economic conditions that we're looking at today and our
forecast for next year, we're looking for more carts earlier
in the earlier part of next year, and then are
gradual tapering off over the years.
Speaker 1 (02:58):
When you talk about productivity as you did yesterday, how
worried are you about the brain train?
Speaker 2 (03:04):
Oh? Yeah, migrations definitely up.
Speaker 1 (03:10):
And yeah, but the problem is they're all leaving and
fewer and fewer people are coming in, and the chances
are we're going to be going backwards. None of that
can be good for the economy, can it. Yeah.
Speaker 2 (03:21):
So there's two things. You know, you'll have seen that
there's a we lowered our growth outlooks for the economy.
Speaker 1 (03:31):
Is that because of that, By the way.
Speaker 2 (03:33):
There's truths there well population growth, So we lowered our
estimates of future population growth sitting in there, so that
has some impact. The second impact to it was as
our assessment of productivity, and New Zealand's productivity levels are low.
We have businesses that tend to focus on hiring labor
(03:55):
rather than doing the upstrame investment in capital that may
you know that will help help us do things quicker
and faster. When you have low productivity levels, your potential
growth is lower.
Speaker 1 (04:09):
So that is what The other driver are those two
things that you can't daw bone. You wish you could,
but you can't. So one is the productivity. We've had
this discussion for decades in this country. We were just
no good at it. The other one Adrian reference getting
money out of housing and into something else that doesn't
happen either. Are you frustrated by that?
Speaker 2 (04:28):
I think most of New Zealanders should be frustrated by that.
Mike productivity. There are things New Zealand can do about that.
A lot of those things don't fit within the Reserve
Banks wheelhouse. You know, there are certainly things that need
to happen to think about, improvement of access to capital,
improvements in willingness for businesses to adopt the pace of technology, faster,
(04:57):
investment in R and D, all those good things. Education.
We need our education up all of those things will
drive that's outside of our outside of our wheelhouse house prices. Look,
interest rates do impact on that. We are forecasting a
bounce in house prices through next year off the back
(05:19):
of lower interest rates, but we're not expecting that to
be a significant growth story moving forward. There are things
that initiatives that the government's talking about which will increase
there creates the ability to impress the supply of housing.
We definitely need to see that to stop that cyclical case.
(05:39):
And on our side, the introduction of depth and some
ratios sure that over time helps move the cycle right
as well.
Speaker 1 (05:49):
I've never talked to you before, so it's an apt
time to ask the question. Given that we've had three recessions,
most likely three recessions in two years, do you carry
personal responsibility and feel bad for what you've done to
this country?
Speaker 2 (06:02):
Do I feel bad? Look, the best thing that we
can do is ensure that there's price stability in this economy.
So low stable inflation is the best thing that we
can do for economic wellbeing. Monetary policy has been proven
to be the best thing to support that, and that
is meant that we have had to undertake actions through
(06:25):
restriction of monetary policy to get ourselves back will to
get New Zealand back into a position we have low
stable inflation.
Speaker 1 (06:33):
You're giving me the reserve bank line, Karen, I'm talking
about all the other reserve banks that haven't had three recessions.
You guys have cocked it up worse than others. Does
that make you feel bad?
Speaker 2 (06:42):
I don't think we have cocked it up, Mike. I
think what we've done is respond to the conditions that
we have. There are things that are different about this economy.
If you want to compare us to the US, the
big difference between New Zealand and the US is our
productivity levels results. We can do things. We can grow
without creating capacity pressures which lead to inflation. So we're
(07:07):
responding to the conditions that we have here in New Zealand.
Speaker 1 (07:10):
Appreciate your time, Karen Silk, who is the Associate Governor
of the Reserving For more from the My Asking Breakfast,
listen live to news talks that'd be from six am weekdays,
or follow the podcast on iHeartRadio.
Popular Podcasts
Stuff You Should Know
If you've ever wanted to know about champagne, satanism, the Stonewall Uprising, chaos theory, LSD, El Nino, true crime and Rosa Parks, then look no further. Josh and Chuck have you covered.
24/7 News: The Latest
The latest news in 4 minutes updated every hour, every day.
Crime Junkie
Does hearing about a true crime case always leave you scouring the internet for the truth behind the story? Dive into your next mystery with Crime Junkie. Every Monday, join your host Ashley Flowers as she unravels all the details of infamous and underreported true crime cases with her best friend Brit Prawat. From cold cases to missing persons and heroes in our community who seek justice, Crime Junkie is your destination for theories and stories you won’t hear anywhere else. Whether you're a seasoned true crime enthusiast or new to the genre, you'll find yourself on the edge of your seat awaiting a new episode every Monday. If you can never get enough true crime... Congratulations, you’ve found your people. Follow to join a community of Crime Junkies! Crime Junkie is presented by audiochuck Media Company.