Why inflation and your mortgage rate will remain high - Stock Takes Podcast

Don't expect your mortgage rate to drop any time soon. Photo / 123rf

The rate of inflation is now showing signs of coming back down but it could be another year before it gets back into the 1 to 3 per cent range being targeted by the Reserve Bank.

That’s the view of Fisher Funds chief investment officer Ashley Gardyne. Last week StatsNZ revealed the Consumer Price Index was 6.7 per cent for the March year, a big drop on the 7.2 per cent rate seen in the December year.

Gardyne says US inflation is expected to come back down to around 3 to 4 per cent by the end of this year but he says inflation in New Zealand is stickier.

“If you look at the US by later this year, they expect inflation to be somewhere between 3 and 4 per cent and the following year back into the target range. In New Zealand, I wouldn’t be surprised if it took an extra year. So 2024. 2025.”

Gardyne says there are a number of reasons why it’s proving harder to get the New Zealand inflation rate down.

“One is our New Zealand dollar has fallen quite a bit over the last year and that essentially causes input prices to go up. So that’s one of the reasons that our inflation has been stickier, having closed borders for a long time as well impacted immigration flows and resulted in a shortage of labour.”

Gardyne says there are also factors specific to New Zealand like the recent cyclones and bad weather events.

“The most recent inflation print we saw food prices were one of the big drivers. Veggie prices are up 22 per cent over the last year, which my kids are happy about. It means there’ll be less veggies on the table.

“But part of the reason for that is Cyclone Gabrielle, and that’s having an impact on inflation right now, but will also have an impact on construction costs and inflation for the next year or so.”

Gardyne says higher prices will continue to make it difficult for households and for those with a mortgage it is compounded by higher mortgage rates.

In the US borrowers fix their mortgage rates for 20 or 30 years but here homeowners tend to re-fix every one to two years, making Kiwis much more sensitive to interest rate changes.

“That’s the other thing that makes us a bit more cautious about the New Zealand economy compared to the US economy.”

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