Gareth Kiernan: Infometrics Chief Forecaster warns of risk to rise in inflation

There are fears that inflation could come back into the picture as the OCR falls. 

Infometrics expects the OCR to fall to 2.25% next month - it's 2.5% at the moment. 

Infometrics Chief Forecaster Gareth Kiernan says they expect to see growth hit 2.3% annual growth in 2027. 

He says alongside stoking inflation, it could create other problems. 

Kiernan says it risks stretching capacity in the construction and infrastructure sector. 

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Episode Transcript

Speaker 1 (00:00):
Wow, fascinating you forecast for our economy infometrics thinks the
Reserve Bank's going to cut next month. Well, hopefully done,
we all, but that impact won't flow through until mid
next year. Right by that time, they argue your expert
returns an earlier rate carts, they'll have kicked in, growth
will have fired up, and all of a sudden we
face the prospect of a bit of overheating. So Gareth
Kennan's the infometrics to forecaster, of course, and it's back

(00:22):
with this is Gareth. Morning.

Speaker 2 (00:23):
Morning, Mike.

Speaker 1 (00:24):
Haven't talked to you for ages. You're feeling good?

Speaker 2 (00:27):
Well, I've been taking them happy pills, haven't I It's
been a little while since we've talked about upside risks to.

Speaker 1 (00:31):
Them bring on some overheating. I'm looking well to the
winds that arrived.

Speaker 2 (00:38):
Well, yeah, probably the sort of middle to the latter
part of next year. We think the growth will be
pushing out towards over two percent. I mean, that's not
rapid growth, but we're still looking at a picture where
population growth is relatively weak, and as you say, over
the last couple of years we've had nothing going backwards.
So it is looking like better times coming through, but
the warriors you get through to twenty twenty seven and

(00:58):
then Reserve Bank probably need to start hiking rates up again.

Speaker 1 (01:01):
Now we're talking next week, we get to read on
the inflation, which may well breach three. Is that part
of this or do we look through that but for
now and still wait for some real growth to come
through in twenty six.

Speaker 2 (01:11):
Yeah. I don't see a lot of concern around that
sort of inflation number next week, although you're right it's
close to the top of the target band for the bank.
When you look past the sort of electricity, the insurance,
the rates, right through most of the rest of the CPI,
there's not a lot of price pressures there. It reflects
the weak demand across the economy. So quite different to
what we were seeing three or four years ago.

Speaker 1 (01:31):
How confident in this forecast are you?

Speaker 2 (01:35):
There's still a lot of uncertainty out there, let's be honest,
and that does factor through into the Reserve banks thinking
and their decision making. At the moment. You know, you've
still got the international situation rumbling on with tariffs and
you know what Trump is doing in that space. You've
had a little bit of weakness coming through, not a lot,
but just a little bit of cautionary signs in terms
of dairy prices and horticulture prices recently as well. And

(01:56):
you know, anyone who listens to economists over the last
eighteen months or have been told several times that the
economy is going to be improving and they get to
see it, of course.

Speaker 1 (02:04):
Yeah, exactly. Cash rate, you say, back to three, So,
remembering it's low tows cash right back to three by
the end of twenty seven. So what you're arguing is
we're down and then we're going to fire up, and
by firing up, we're back up to three. So it's down,
then it's up.

Speaker 2 (02:19):
That's right. Then, let's be honest, three percent doesn't really
concern us. That's kind of getting back to neutral. The
risk for us, and this is not our central forecast,
but the risk that we're increasingly starting to become concerned
about is that rather than going to three percent by
the end of twenty twenty seven, you're back up to
four percent and then you've got mortgage rates up over
six percent.

Speaker 1 (02:36):
Yeah. Interesting, all right, mate, go well, appreciate it. Gareth
Kernan out of Infometrics.

Speaker 2 (02:40):
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