January 21, 2025 • 5 mins
Over in Australia, the unemployment rate increased to 4 percent in December - raising questions ahead of a potential interest rate cut next month.
Unemployment is one of the key metrics the RBA uses to inform interest rate settings, and a weakening market could encourage the central bank to reduce rates.
HSBC chief economist Paul Bloxham explains further.
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Speaker 1 (00:00):
Andrew Dickens.
Speaker 2 (00:02):
Okay, we're joined now by Paul Bloxam from AHSBC to
talk about the New Zealand economy. Welcome to the program, Paul,
and happy new Year.
Speaker 1 (00:11):
Good a happy new year to you too.
Speaker 2 (00:13):
New Zealand inflation data for the December quarter is out tomorrow.
We've already had Brad Olson on from infor metrics. He
reckons two percent. That means the inflation rate is falling.
He's got one of the lowest rates out of everybody.
Speaker 1 (00:25):
What do you reckon, Well, we've got two point one,
so we're slightly above him, but we're below slightly below
the consensus, so we've still got inflation falling as well.
And I think the main thing though to keep in mind,
inflation looks as though it's fairly clearly going to be
around the center of the around the center of the
Arbenza's target band and roughly on target. The key thing
(00:46):
to look out for, though will be to look for
those underlying measures, the core measures of inflation, and in
particular non tradable, so the part of inflation that's about
domestic inflation, so services inflation, because that's the part that
had been rising still too quickly, and probably although it
will be coming down, will still be slightly elevated, and
it will be that piece of information really sort of
(01:07):
firms up how much the RBNZ is likely to cut
next month. Now you know, we think they're going to cut.
We think there are a number of cuts yet to
come from the rb and Z. You know, inflation is
coming down, the economy has been very weak, and the
rbnz's got scope to lower interest rates, but it's just
a question of how much front loading. How quickly do
they lower rates. Do they go fifty, do they go
(01:28):
twenty five? And these numbers are going to help to
firm that up.
Speaker 2 (01:31):
I think this is a very important point to stress
because when we look at inflation, there are two types,
tradable and non tradable inflation, and the measure that gives
publicized is the average of the two. And so just
before Christmas, the politicians were starting to say, look at this,
We've got it under control. But the tradeabill was certainly
under two, but the non tradable was round about what
(01:53):
four point eight percent, and that is you know, rents
and rates and electricity supply and all that sort of thing.
Four point eight is still high and it's too soon
to say we've got inflation under control.
Speaker 1 (02:06):
Oh, that's right. So this is the non tradable part,
is the services part. It's mostly domestic inflation, and really,
when you think about it, it's the thing that the
arbens that has the most influence on with its policy leader.
So it lowers the policy rate, lifts it of course
sometimes and that has a bigger impact on the domestic
economy than it does on those international forces that are
driving tradable. So in some ways you look at services
(02:28):
inflation non tradable inflation not just to assess the momentum
in inflation and determine where you're at, but also because
it's the bit that the monetary policy can have the
most influence on. So that will be the thing really
to keep a close eye on tomorrow when we get
those numbers.
Speaker 2 (02:42):
Absolutely, also the government has control because they have the
regulatory control, so they can also help in the battle
against non tradable But that's tomorrow's conversation. To Australia, unemployment
now sitting at four percent, how's the job market?
Speaker 1 (02:55):
The job market is still strong, and I would say
there's some signs that it's looking as though it's starting
for Titan as well rather than loosen. So you know,
if you recall the obviously, the RBA has been trying
to get inflation down as well, and one of the
ways you do that is having listed interest rates. They've
been flowing the economy and despite the fact that the
GDP growth or growth in the economy has slowed down
(03:17):
quite a lot last year, the labor market has still
continued to be quite resilient. There was quite a lot
of job creation in December, that's the number you're referring to.
And despite the fact that the unemployment rate ticked slightly higher,
it's still actually below the level that had reached in
the middle of last year. It had reached four point two.
It's come down to four. So you know, you've got
a strong labor market and it looks like, well, the
(03:37):
labor market may very well be tightening, so it really
makes it hard for the RBA to think about cutting
interest rates. We've got an inflation print in Australia that
comes out next week, and of course that will play
a role in this in this story as well. But
of course the NZ or the RBA hasn't even lowered
interest rates yet. So this is a question as to
whether they'll be able to go in February.
Speaker 2 (03:59):
And final question which you might not have been prepared for,
but it's obviously the story of the day Donald Trumps
n he has threatened by February twenty five percent tariffs
on Canada and Mexico. How might that affect Australia and
New Zeine? How likely are we to be hit by
tariffs in a trade will Well.
Speaker 1 (04:16):
There's a lot of uncertainty in this story because a
part of it is that although he's noted during the
day that they might put in place tariffs, he's also
pointed out that they're a negotiating tactic, and then so
it's not entirely clear that those are going to be introduced.
And then of course the question is whether it spreads
more widely than that to other countries too, as you say,
(04:38):
and then in addition to that, just to add to
the complications, it's not just about assessing what happens with
US policy, but what do other countries do in response
in terms of their policies. And the major one that
we really have to watch out for in Australia and
New Zealand is what China does in response, because that's
our biggest trading partner, you know. Obviously New Zealand and
Australia very very strongly driven by the China story. So
(05:02):
it's a very very complicated web to sort of see, well,
one thing happens in one country, it really matters what
happens in other countries as well, and it's this that's
creating quite a bit of uncertainty. Obviously.
Speaker 2 (05:12):
I told you a Republican strategist today and she said,
you've got to remember that Donald Trump is a businessman
and when it comes to negotiation, what do you do?
You start high, but you can often end out low.
So we'll wait to see what happens. Paul, It's always
a pleasure to talk to you. Thank you for your
time today. Now worries Paul Boxam. He is the HSBC
Chief Economist.
Speaker 1 (05:32):
For more from Hither Duplessy Allen Drive, listen live to
news talks it'd be from four pm weekdays, or follow
the podcast on iHeartRadio.
Andrew Dickens.
Speaker 2 (00:02):
Okay, we're joined now by Paul Bloxam from AHSBC to
talk about the New Zealand economy. Welcome to the program, Paul,
and happy new Year.
Speaker 1 (00:11):
Good a happy new year to you too.
Speaker 2 (00:13):
New Zealand inflation data for the December quarter is out tomorrow.
We've already had Brad Olson on from infor metrics. He
reckons two percent. That means the inflation rate is falling.
He's got one of the lowest rates out of everybody.
Speaker 1 (00:25):
What do you reckon, Well, we've got two point one,
so we're slightly above him, but we're below slightly below
the consensus, so we've still got inflation falling as well.
And I think the main thing though to keep in mind,
inflation looks as though it's fairly clearly going to be
around the center of the around the center of the
Arbenza's target band and roughly on target. The key thing
(00:46):
to look out for, though will be to look for
those underlying measures, the core measures of inflation, and in
particular non tradable, so the part of inflation that's about
domestic inflation, so services inflation, because that's the part that
had been rising still too quickly, and probably although it
will be coming down, will still be slightly elevated, and
it will be that piece of information really sort of
(01:07):
firms up how much the RBNZ is likely to cut
next month. Now you know, we think they're going to cut.
We think there are a number of cuts yet to
come from the rb and Z. You know, inflation is
coming down, the economy has been very weak, and the
rbnz's got scope to lower interest rates, but it's just
a question of how much front loading. How quickly do
they lower rates. Do they go fifty, do they go
(01:28):
twenty five? And these numbers are going to help to
firm that up.
Speaker 2 (01:31):
I think this is a very important point to stress
because when we look at inflation, there are two types,
tradable and non tradable inflation, and the measure that gives
publicized is the average of the two. And so just
before Christmas, the politicians were starting to say, look at this,
We've got it under control. But the tradeabill was certainly
under two, but the non tradable was round about what
(01:53):
four point eight percent, and that is you know, rents
and rates and electricity supply and all that sort of thing.
Four point eight is still high and it's too soon
to say we've got inflation under control.
Speaker 1 (02:06):
Oh, that's right. So this is the non tradable part,
is the services part. It's mostly domestic inflation, and really,
when you think about it, it's the thing that the
arbens that has the most influence on with its policy leader.
So it lowers the policy rate, lifts it of course
sometimes and that has a bigger impact on the domestic
economy than it does on those international forces that are
driving tradable. So in some ways you look at services
(02:28):
inflation non tradable inflation not just to assess the momentum
in inflation and determine where you're at, but also because
it's the bit that the monetary policy can have the
most influence on. So that will be the thing really
to keep a close eye on tomorrow when we get
those numbers.
Speaker 2 (02:42):
Absolutely, also the government has control because they have the
regulatory control, so they can also help in the battle
against non tradable But that's tomorrow's conversation. To Australia, unemployment
now sitting at four percent, how's the job market?
Speaker 1 (02:55):
The job market is still strong, and I would say
there's some signs that it's looking as though it's starting
for Titan as well rather than loosen. So you know,
if you recall the obviously, the RBA has been trying
to get inflation down as well, and one of the
ways you do that is having listed interest rates. They've
been flowing the economy and despite the fact that the
GDP growth or growth in the economy has slowed down
(03:17):
quite a lot last year, the labor market has still
continued to be quite resilient. There was quite a lot
of job creation in December, that's the number you're referring to.
And despite the fact that the unemployment rate ticked slightly higher,
it's still actually below the level that had reached in
the middle of last year. It had reached four point two.
It's come down to four. So you know, you've got
a strong labor market and it looks like, well, the
(03:37):
labor market may very well be tightening, so it really
makes it hard for the RBA to think about cutting
interest rates. We've got an inflation print in Australia that
comes out next week, and of course that will play
a role in this in this story as well. But
of course the NZ or the RBA hasn't even lowered
interest rates yet. So this is a question as to
whether they'll be able to go in February.
Speaker 2 (03:59):
And final question which you might not have been prepared for,
but it's obviously the story of the day Donald Trumps
n he has threatened by February twenty five percent tariffs
on Canada and Mexico. How might that affect Australia and
New Zeine? How likely are we to be hit by
tariffs in a trade will Well.
Speaker 1 (04:16):
There's a lot of uncertainty in this story because a
part of it is that although he's noted during the
day that they might put in place tariffs, he's also
pointed out that they're a negotiating tactic, and then so
it's not entirely clear that those are going to be introduced.
And then of course the question is whether it spreads
more widely than that to other countries too, as you say,
(04:38):
and then in addition to that, just to add to
the complications, it's not just about assessing what happens with
US policy, but what do other countries do in response
in terms of their policies. And the major one that
we really have to watch out for in Australia and
New Zealand is what China does in response, because that's
our biggest trading partner, you know. Obviously New Zealand and
Australia very very strongly driven by the China story. So
(05:02):
it's a very very complicated web to sort of see, well,
one thing happens in one country, it really matters what
happens in other countries as well, and it's this that's
creating quite a bit of uncertainty. Obviously.
Speaker 2 (05:12):
I told you a Republican strategist today and she said,
you've got to remember that Donald Trump is a businessman
and when it comes to negotiation, what do you do?
You start high, but you can often end out low.
So we'll wait to see what happens. Paul, It's always
a pleasure to talk to you. Thank you for your
time today. Now worries Paul Boxam. He is the HSBC
Chief Economist.
Speaker 1 (05:32):
For more from Hither Duplessy Allen Drive, listen live to
news talks it'd be from four pm weekdays, or follow
the podcast on iHeartRadio.
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