Gareth Kiernan: Infometrics Chief Forecaster on what Donald Trump's tariffs could mean for inflation going forward

US tariffs are expected to impact our next inflation figures, according to new reports.

The rate increased in the three months to March to 2.5 percent - up from 2.2 percent to December.

Petrol, milk, cheese, eggs have all gone up, alongside a dip in prices for international flights and games.

Infometrics Chief Forecaster Gareth Kiernan says the new tariffs could push inflation down because of weaker demand.

"And we know there will be some cost pressures that do rise because of the changing trade situation. So it's mixed, but the sentiment is pushing towards maybe a little less inflation."

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Episode Transcript

Speaker 1 (00:00):
A good afternoon. Inflation has ticked up again. It's coming
at two and a half percent in the first three
months of the year. Gareth Kennan is Informetric's chief forecast
to Gareth, Hello, hi Heaver. Now this is only marginally
higher than what was forecast, right, it was forecast to
coming at two point four. It's coming at two point five.
Is this worth worrying about?

Speaker 2 (00:18):
Look, it's just the sort of general sentiment and direction
of travel that we're a little bit concerned about. At
the moment, there were already expectations that inflation was going
to be picking up through the course of this year
to some degree. A reserve bank has I think it
peaking at two point seven percent later this year. I
guess the issue really is that we've come from a
period of very higher inflation over the last few years
and the Reserve Bank has only just regaining its inflation

(00:41):
fighting credibility. So there'll be, you know, some concerns there that,
you know, if we're too slow off the mark again
or a little bit too relaxed about how inflation is going,
then you know where do we end up in eighteen
months time.

Speaker 1 (00:52):
Although on the other hand, Gareth the consensus appears to
be growing that what's going on with the tariffs will
drop inflation back down.

Speaker 2 (00:58):
Right, Yeah, Look, it's pretty ambiguous at the moment. I
think the general sentiment, you're right, seems to be pushing
in the direction of a disinflationary pressure. So less inflation
in the system because weaker world growth, less demand means
there'll be sort of more discounting going on and products
available more cheaply. But at the same time, there is
still pockets of the sort of lingering price pressure. Before

(01:20):
the tariffs that were out coming out, there was concerns
about American inflation just holding up a bit more strongly,
and we know there will be some cost pressures that
do rise because of the changing trade situation. So it's mixed,
But you're right, the sentiment is pushing towards maybe a
little less inflation from the tariffs. As a result.

Speaker 1 (01:37):
We had am Z yesterday saying that they thought the OCR,
which is sitting at three point five at the moment's
going to bottom out at two point five. Would you
agree with that.

Speaker 2 (01:46):
Our forecast at the moment is for the OCR to
get down to three percent over the next three months.
But we think the Reserve Bank does need to just
sort of take a cautious approach and see how the
data unfolds. Beyond that as to whether further rate cuts
are possible. If inflation comes in and it's more below
expectation and coming quarters, there will be more room to cut.
But at the moment it is a mixed situation. I

(02:07):
think the reality is the banks core mandate is keeping
inflation under control. Yes, we know that prospects around economic
growth are weakening and softening as a result of the
global situation, but that's not their core mandate. It's effectively inflation.

Speaker 1 (02:20):
Yeah. Now listen on the GDP growth. I see that
you guys have gone from forecasting for next year GDP
growth of two point four percent down now to one percent.
That's a reasonably significant reduction. Do you think that this
is I mean, are we now at the point where
Nicola Willis needs to start thinking very carefully and preparing
this budget.

Speaker 2 (02:38):
Well. So, certainly on the revenue side, if you experiencing
economy that's growing at one percent rather than close to
two and a half percent, that does have implications on
the tax site. I don't know if it's going to
make too much difference on the other side of the equation,
because we know that those that fiscal position is very
tight for the government. They're running a surplus for the
next four a deficit for the next four or five years.
Surpluses nowhere to be seen, and so it's difficult for

(03:02):
them to offer a great deal of support for the economy. Obviously,
they've talked a lot about infrastructure. That's great, but it's
also not something that necessarily stimulates a lot of economic activity,
particularly quickly.

Speaker 1 (03:11):
Good stuff. Gareth, thanks so much, appreciate it. Happy Easter,
Gareth Kennan of Informetric's chief forecaster.

Speaker 2 (03:17):
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