KEY POINTS:
Rents could rise 6 per cent a year, creating a new source of inflation, Westpac economists say.
The bank also said the softening housing market would reduce inflationary pressures but the dairy boom would outweigh the impact of the slowing housing market boosting spending and inflation.
Westpac said rents had been subdued for years rising at an average rate of just 2.2 per cent a year over the past four years. It expected rents would accelerate rapidly by 6 per cent per annum and would stay that high for five years, creating inflationary pressure.
One of the reasons for this was increased demand for rental housing. "High interest rates will reduce supply," it noted.
