Mark Smith: ASB senior economist on latest inflation figures

Inflation appears to be easing, although some figures are continuing to surge.

Latest Stats NZ figures show petrol is 14.9 percent cheaper than a year ago, while food prices rose 1.2 percent.

Fruit and vegetables are 8.3 percent cheaper, while olive oil is 58 percent pricier.

Butter, chocolate biscuits and alcohol have also been getting darer.

ASB senior economist Mark Smith joined Francesca Rudkin.

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Episode Transcript

Speaker 1 (00:00):
Right. Inflation appears to be easing, although some costs are
continuing to search. The latest figures from Stats New Zealand
show petrol is fourteen point nine percent cheaper than a
year ago, and food prices rose one point two percent.
Fruit and veggie is eight point three percent cheaper, but
olive oil is fifty eight percent price here man is it?

Speaker 2 (00:22):
Ever?

Speaker 1 (00:22):
While butter, chocolate, biscuits and alcohol have also been getting dearer,
asb Senior economist Mark Smith joins me, Now, good evening, Marke,
how are you doing?

Speaker 2 (00:32):
Good evening? Good? Thanks?

Speaker 1 (00:33):
How are you a bit of a mixed bag? There
isn't it? Some highs and loves? Yes? Are we seeing
though signs inflation is getting under control.

Speaker 2 (00:41):
Yes, yeah, there are welcome signs of that happening. But
as you said, there's quite a lot of variation. But really,
what we've done says the general tendency for price increases
is slowing and that is really encouraging to households have
really been under the kosh over the last few years.

Speaker 1 (00:58):
So what are still the biggest drivers of inflation?

Speaker 2 (01:01):
Well, really, when you look at it, you've got the
external environment. So as you said, petrol prices fell in
the quarter, and that's likely to be a major contributor
towards falling external prices that we expect for the year,
so down around one and a half percent. But on
the other side, the domestic component of inflation remains elevated
at around five percent. Now, looking at those certain areas,

(01:25):
there are some welcome signs things like construction cost inflation
should sharply fall in the quarter, but unfortunately there are
a lot of cost increases. Things like local authority rates
and insurance will keep that domestic inflation rate high.

Speaker 1 (01:39):
Will they oc to help ease any of this? I'm
sort of thinking about rents and things.

Speaker 2 (01:45):
Really, the OCR is responding to the inflation rate rather
than the other way around. But what we are seeing
now is as the economy is calling, inflationary pressures are
starting the call, and as a result, the OCR is
moving lower. Now at four point seventy five percent, it's
still pretty much on the tighter side of neutral, which
is around three to four percent, but encouragingly, it's starting

(02:07):
to move lower.

Speaker 1 (02:08):
Okay, what do you think this means for the CPI
next Wednesday?

Speaker 2 (02:14):
We expect a two point two percent annual increase, but
as you said there's quale out of variation, but we
do expect signs there to really concern that the central
tendencim price increases is falling, core inflation is falling, and
as a result, the official cash rate needs to move
lower from here.

Speaker 1 (02:32):
Would you be happy with that two point two percent increase?
What would you like to see?

Speaker 2 (02:35):
Again? Again, the lower the better. It would depend on
the composition, but really what we're seeing, it's the reserve
bank if we'ked hard. But as a result, inflation is
certainly calling. So as a result, we expect at least
a fifty basis point cup in the official cash rate
in November.

Speaker 1 (02:53):
Yeah, we sort of we're just sort of we're edging
along and now we're taking quite big leaps with the
ocr aren't we.

Speaker 2 (02:59):
You think that will continue, I think until we get
to sort of more neutral levels. So at the moment,
the OCA is at four point seventy five percent if
you like the goldilock zones, you know, three to four percent,
So they need to move it pretty quickly now with
evidence inflation is pretty much you know, it's been beaten.
The inflation beef has been beaten. Never say never, but

(03:21):
signs is certainly encouraging. So as a result, they need
to really take the foot off the brake pedal and
move into neutral. Unfortunately, if the economy really weakens, they
might need to actually put the foot on the accelerator,
and that means the social cash rate lower than three percent.

Speaker 1 (03:36):
Okay, oh look good to talk to you. Thank you
very much Mark for talking us through that. That was
ASP senior economist. For more from hither Duplassy, Allen Drive,
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