Paul Bloxham: HSBC chief economist predicts whether inflation will dip below 3 percent tomorrow

All eyes are on Stats NZ's newest release tomorrow - as Kiwis brace to find out the official Consumers Price Index figures.

Following the Reserve Bank's latest cut to the OCR, the bank is confident inflation has dipped below the 3 percent threshold.

HSBC chief economist Paul Bloxham predicts whether or not inflation will drop back within the target band.

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Episode Transcript

Speaker 1 (00:00):
Hey, listen, Tomorrow, big day. We're going to find out
whether inflation is officially back in the target band. It
peaked obviously seven point three percent mid twenty two, down
to three point three percent in the last quarter. Paul
blocks them as hspc's chief economist, and with us now Paul, Hello, Hello,
you sitting with a consensus two point two two point three.

Speaker 2 (00:17):
Percent two point one. Yeah, we're we're down there. We
think that it's going to be quite a low number.
It's going to fall quite a long way. And yes,
of course back in the target band and not too
far off the center of the target band, which is
all pretty good news really, And obviously part of that
good news has already been reflected in the fact that
the RBNZ has already delivered seventy five basis points of

(00:38):
easing twenty five and then the super sized move we
got from them last week. In terms of that fifty
basis point move, we think that probably, given if that happens,
and if that's the pace of disinflation that's happening in
the economy, that the RBNZ will probably easily deliver a
large move again in November before Christmas. So we think
another fifty basis point move. That's what we're factoring in.

(00:59):
Inflation is coming down because of course the New Zealand
economy has been a very weak You've had an extended
period of weakness in the economy for almost were basically
two years, and so that has disinflated the economy. And
now the Arbenz can focus on trying to pump prime
growth by lowering interest rates, and that's that's that's the
New Zealand story, Paul.

Speaker 1 (01:20):
There are already calls for even bigger than fifty basis points,
seventy five basis points. Is that is that possible?

Speaker 2 (01:26):
It's possible. It's certainly the case that given there's such
a large gap between the November meeting and the February
meeting next year, you know, it's a really long period
of time. And given that it's pretty clear that the
economy is weak, the labor markets loosening, that inflation's coming down,
that the arbyen Z could deliver further more, even more

(01:49):
support than that. So it'll depend a little bit on
what that print looks like tomorrow, partly the composition of
it as well. So inflation's coming down, most of this
inflation we've seen so far has been goods prices coming down,
and there's still been this residual stickiness in services inflation,
and so one of the key questions will be how
much is services inflation still holding up, how much is

(02:11):
it domestic inflation still a little bit sticky, and that'll
be a factor in the RBNS and thinking no doubt,
and then of course looking at the sort of timely
indicators of what happens in the jobs market, which they'll
get another print of before we get to the November
meeting and some on. So, yes, it is possible. Not
what we're thinking is the central case, but what we
should all think is there are moll rate cuts that

(02:31):
are coming soon. Paul.

Speaker 1 (02:33):
Is there a justification potentially, because as you point out,
I mean, it is a massive gap between the end
of November and when they come back in the new year.
Is there a justification for actually perhaps prudently scheduling a
few extra meetings and saying, look, it's unorthodox, but we're
going to put a few in there because we may
need to move even faster.

Speaker 2 (02:52):
Well, I mean, you can make the case that they
could meet a bit more frequently. The RBA, for example,
used to meet eleven times a year, and actually recently
because of its review over here in Australia shifted the
other way. They've gone from meeting eleven times a year
to now they're going to be meeting eight times a year.
They're doing that now. So the general sort of trend

(03:14):
across the world if you look at the major central banks,
the key central banks in the developed economies, is to
meet about eight times a year.

Speaker 1 (03:21):
I mean, what I'm saying with them, it's absolutely fine
in normal times, right when you're not in war times,
to kind of maybe leave it at eleven or leave
it at day or whatever. But the New Zealand economy
is clearly in quite a bloody pickle where we are
talking about fifty to seventy five basis point cuts in
which case should they not be on a war footing
and saying because of the difficulty the economy is facing,
we are going to the summer meet more frequently because

(03:43):
we're in trouble.

Speaker 2 (03:45):
Well, that's for the RBNZ to assess. They could decided
they wanted to have an extra meeting if they wanted
to the question the balancing act there is, is it
better to call some sort of additional meeting because you
are and therefore you would be conveying that you are
really very very concerned about the economy. Or is it
better to stick to the original schedule and move in
larger increments if you feel like you need to exactly

(04:06):
keep and feel and move in larger increments if you
actually feel like you need to deliver more support. So
I think as a working assumption, as a sort of
best assessment of what's likely to happen, I think they're
more likely to move, you know, faster they if they
feel like they need to.

Speaker 1 (04:21):
Yeah, interesting stuff at very interesting times. Paul, Thank you
so much. Appreciate it. Paul Bloxham, agspc's chief economists.

Speaker 2 (04:28):
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