Henry Russell: ANZ Chief Economist on today's predicted inflation rate

Latest data due out this morning is expected to show inflation is slowing down faster than expected but will it be enough to bring down interest rates? 

ANZ's Henry Russell and Infometrics' Brad Olsen expect a headline rate of 3.3%, but driven by offshore factors. 

Russell says a lot of the decline in inflation is being driven by things like food prices, fuel and airfares and Olsen says the Reserve Bank will be more worried about "non-tradable" domestic inflation. 

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Episode Transcript

Speaker 1 (00:00):
Right. It is CPI day. Yay everybody. It's inflation data
for quarter two that will be released by Stats New
Zealand at ten forty five this morning, so stay tuned
for that on news talk, se'd be most banks are
expecting a slight drop, but what does it mean for
consumers and what does it mean for your mortgage? Joining
me now is an z economist and CPI forecaster Henry Russell. Henry,

(00:21):
good morning, Good morning. What would trigger a rate well,
what what number do we do we need to trigger
a rate cut? Do you reckon?

Speaker 2 (00:31):
Well, it's pretty hard to put a number on it.
We're going to have to see what the data brings
today and have a look at the details. But in
terms of what we are expecting, it is good news.
Inflation is expected to fall from four percent to three
point three percent. That is below what the Reserve Bank
expected back in May, a forecast three point six percent.

(00:51):
But that does show in my own information is falling
a little fast than they expected, but a lot of
that reflects weakness across the volatile components, so things like
food prices, fuel and the FIRS, and the Reserve Bank
doesn't really have a lot of influence over these things,
and so really what they'll be focusing on is domestic
inflation or non tradable inflation. There we're actually expecting the

(01:11):
same outcome as the Reserve Bank. That's not to say
that that wouldn't mark progress. It would end the preserved
banks run for consecutive upward surprises since it went on hold.
But we just think it's slightly too early for that
to give the greenlighte for an imminent ocr CUD as
soon as August.

Speaker 1 (01:29):
So you're saying non basically holding non tradable steady would
be a win.

Speaker 2 (01:35):
So we're expecting it to fall from five point eight
to five point three percent, So it is falling and
the quarterly run rate would be closing in on what's
consistent with inflation at target. But yeah, it does seem
like a stretch for a cut to come in August,
but certainly the risks are tilting towards a cut being
delivered this year. But we'll have to see what the

(01:57):
data brings today.

Speaker 1 (01:58):
Do we need more, do we need quarter three data
before making any decisions or with the Reserve Bank need
quarter three data before making decisions on that, or could
could it potentially be based off just quarter one and two.

Speaker 2 (02:11):
I think they will like to see the Q three
data just in the sense that that is likely to
confirm that inflation is back within the one to three
percent target band. But look, there's no denying that recent
economic data has been very, very soft in New Zealand.
The housing market is cooling, the labor market is weakening,
consumer spending as in the business surveys are telling us

(02:34):
that businesses are under pressure. But importantly they're also telling
us that businesses are no longer able to raise their
prices due to week demand, and that cost pressures are moderating.
All these things are adding to our confidence that inflation
is heading back to target and it's likely to stay there.
But we really do need to see those dynamics present

(02:54):
in the inflation data today to confirm to confirm.

Speaker 1 (02:58):
That, Henry, thank you for Henry Russell, the Ainzeed Economist
and CPI forecast ahead of the announcement by Stats in
z our latest inflation data at ten forty five per morning.

Speaker 2 (03:09):
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Speaker 1 (03:14):
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