Satish Ranchhod: Westpac Senior Economist on inflation remaining flat

Annual inflation has remained at 2.2% for the year to December according to the latest update from Stats NZ.

It's slightly above what the Reserve Bank had forecast but economists say it shouldn't impact the potential of a February OCR cut.

Rent was the largest driver of the annual increase, rising 4.2% in the past year.

Westpac Senior Economist Satish Ranchhod says inflation pressures should continue to ease over the coming year.

"Importantly, measures of core inflation (which track the underlying trend in consumer prices) have continued to trend down towards the RBNZ’s target range,"

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Episode Transcript

Speaker 1 (00:00):
Right.

Speaker 2 (00:00):
Inflation has remained steady, increasing two point two percent in
the year to December, the same increase as the previous
September update. Quarterly inflation increased by point five percent. The
biggest driver was rent, up four point two percent, accounting
for a fifth of the increase, followed by local authority
rates which were up twelve point two percent. Domestic non

(00:21):
tradable inflation increase by four point five percent annually, also
driven by rent. So a lot of numbers. What does
it all mean? Westpac Senior economist Satish Renhood is with
me now, thank you for your time this morning.

Speaker 1 (00:34):
Good morning, Francesca.

Speaker 2 (00:35):
Can you tell me what does the rise and non
tradable inflation mean.

Speaker 1 (00:40):
What we've been seeing are some strong pressures the domestic economy.
A lot of households have been feeling that. The good
news though, is that those pressures are coming off, especially
in areas like hospitality, and that meant healthhold should like
to see a little less pressure on their finances this year.

Speaker 2 (00:56):
Okay, so rent was a big driver of this increase, Well,
we see that can continue into the year.

Speaker 1 (01:01):
I think we're likely to see a bit less push
on rents this year. We've seen population growth slow down
and big increase in the housing's plat over the past year,
and we're already hearing about reduced pressure on rents in
areas like Larrington, which often think big increases.

Speaker 2 (01:14):
Okay, so we shouldn't be too concerned about rents rising
throughout twenty twenty five.

Speaker 1 (01:20):
I think it's still a pretty important concern for a
lot of households. It's a big share of this spending,
but hopefully those increases that we see will be more
moderate over the coming year.

Speaker 2 (01:29):
What else would household be thinking about heading into twenty
twenty five and what these numbers can tell us.

Speaker 1 (01:35):
We've had a lot of pressure on households finances over
the last couple of years. That's been a big squeeze
on this spending. But what we're seeing now is a
much bitter contained inflation environment. It means that their paychecks
aren't going to be eroded at the same pace. This
will also be very important for the Reserve Bank.

Speaker 2 (01:52):
Yeah, so how does this impact a February o c
R cut.

Speaker 1 (01:56):
We now that inflation that's very close to the rbn
to target, we're still looking a bit soft. I think
put that together and it's a green light for another
big fifty basis point cut in February, and politely more
seed further rate cuts beyond that.

Speaker 2 (02:09):
Ye, if we're looking further beyond that, what are you anticipating.

Speaker 1 (02:13):
I think beyond February, we're likely to see probably a
twenty five basis point cut at each of the two
following meetings. They'll take cash right down to three twenty
five the lost it's been in a long time.

Speaker 2 (02:24):
So I suppose if you're if you're you've got a
mortgage out there, and maybe this year you've got a
chance to sort of refix that. Where would you seduce
that you kind of start thinking about that if you
wouldn't mind just you know, looking into your crystal ball
there situation.

Speaker 1 (02:38):
I think it's a great time to relook at where
you're mortgage at that. I can't say exactly what a
household could do, but think the big drops over the
past year. So if you had fixed us a one
or two years a couple of years back, you could
see a mortgage rate that's now about one hundred basis
points world when you look last fixed. So that could
be a big saving for your finances.

Speaker 2 (02:57):
So when you look at all those inflation figures that
were released yesterday. How how are you feeling? How positive
are you feeling about twenty twenty five.

Speaker 1 (03:07):
I think this is a really important it's a really
positive development to the economic inflation that's contains me. We'll
see a less pressure on household's finances have really been
pressured over the last couple of years. But importantly the
related reduction and interest rate to put a lot of
money back in the house of back pockets, and that
will also be positive for economic growth and employment more

(03:28):
broadly as we go through twenty twenty five, we.

Speaker 2 (03:30):
Shall take that positivity. Satish, thank you very much for
your time this morning. That was respect seeing the economist
Satish Rancherd. For more from Early edition with Ryan Bridge,
listen live to News Talks it be from five am weekdays,
or follow the podcast on iHeartRadio.