Ryan Bridge: Our economy is still in the wilderness

So we have an inflation number, which is better than not knowing, but it doesn’t tell us much.

2.2 percent for the year to December, no change from the quarter before it and crucially non-tradable inflation, the stuff we should have more control over domestically is sticky at 4.5 percent.

Two main problems here, one for us and one for the Government.

If the exchange rate keeps tanking, the stuff we buy from the rest of the world - like fuel and food - will get more expensive. And if that stuff gets more expensive, you know what that means, more inflation.

Add that to your sticky domestic number and you may have a problem. If that happens, you watch the Reserve Bank get the jitters and hit pause on rate cuts. And then we all get the jitters and pull back on spending.

Then we're riding this seemingly never-ending rollercoaster ride that is the cost of living crisis. The gift from Labour that keeps on giving.

The other problem in these numbers is for the Government. At the election they promised rents would come down once they delivered landlord interest deductibility relief.

I agree with them doing that - it was mad that Labour took it away.

But they were wrong to claim it would bring rents down when rents are, by-and-large, dictated by supply and demand. How much the market is willing to pay for a 3-bedroom place in Mount Victoria is what the market is willing to pay.

So now 80 percent deductibility has kicked in and guess what? Rents are up 4.2 percent in yesterday’s numbers. So not exactly what was promised.

Now, to be fair, they’ll be hoping once the full landlord deduction kicks in and it’s given more time it may help. But it would only be at the margins.

It is not and won’t be the main driver of slashing rents - and yesterday’s numbers proved that.

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Episode Transcript

Speaker 1 (00:00):
So we have a number inflation that is, which is
better than not knowing. But it didn't do exactly what
we wanted to do, which was to come down two
point two percent for the year to December, no change
from the quarter before it, and crucially, non tradable inflation
that's the stuff that we should have more control over
domestically was down slightly but still four and a half percent.

(00:21):
Two problems here, one for us, one for the government.
If the key we dollar keeps falling, the stuff that
we buy from the rest of the world, think fuel
and food will get more expensive. If that stuff gets
more expensive, yep, that means you guessed it inflation. Add
that to your sticky domestic number and you may start
to have a problem. Suddenly the Reserve Bank gets the
jitters and tie hose on rate cuts. Then we all

(00:44):
get the jitters and pull back on spending, and then
we're riding this seemingly never ending roller coaster that is
the cost of living crisis. The gift from labor, it
just keeps on giving. The other problem in these numbers
is for the government. At the election, they promised, remember this,
that rents would come down once they delivered the landlord
interest deductibility relief. Now I agree with them doing that.

(01:08):
It was mad that Labour took it away, but they
were wrong to claim that it would bring rents down
when rents are by and large dictated by supply and demand.
How much the market is willing to pay for a
three betty in Mountvick is what the market is willing
to pay. Right, So, now eighty percent deductibility has kicked
in and guess what rents are up four point two

(01:29):
percent in yesterday's numbers, So not exactly what was promised
by the government now, to be fair, they will be
hoping that once the full landlord deduction kicks in and
it's given more time, it may help. And it might,
but at the margins it is not and won't be
the main driver of slashing rents, and yesterday's numbers only

(01:49):
proved that. For more from the Mike Asking Breakfast, listen
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