The Reserve Bank may have to cut the cash rate this year. Photo / NZME
The Reserve Bank may have to cut the cash rate this year. Photo / NZME
Kiwibank economists say they expect to see the Reserve Bank (RBNZ) cutting the Official Cash Rate by November as the economy heads into recession.
Kiwibank chief economist Jarrod Kerr and his team are sticking tothe market consensus that the RBNZ will deliver one more 25 basis point hike next month.
But they argue that it is not actually needed and may push the economy into a bigger than-necessary slump.
“We’re confident we’ve seen the peak in inflation, with the annual rate comfortably below 7 per cent,” Kerr said in a new report today.
“We should see the final RBNZ rate hike in May. Although it’s not needed.”
“Half of our inflation has come from offshore. And it’s that half that’s providing relief. Annual tradable [imported] inflation has dropped sharply from 8.2 per cent to 6.4 per cent - and we forecast a fall to 1 per cent by year-end,” he said.
Jarrod Kerr, Kiwibank chief economist.
“There’s a good chance of some imported deflation into 2024. Petrol prices have dropped 8.3 per cent over the last year, and we expect to see further falls in oil prices into 2024, as global demand wanes.”
Another indication that we were past the peak was the continued easing of core inflation (which strips out the most volatile goods, like oil and food), he said.
It was not all good news, however.
There were still some hot spots and food price inflation was being felt acutely, with a “whopping” 3.7 per cent gain in the quarter alone.
Annual non-tradable (domestic inflation) accelerated to 6.8 per cent from 6.6 per cent - a new record high since Stats NZ began reporting the domestic/imported split in 1999, he noted.
“It’s pleasing to see tradable decelerating, but the cyclone and following rebuild frustrates the outlook for domestic inflation - which will frustrate the RBNZ,” Kerr said.
It was still too early to be claiming any sort of victory, however, he said.
“There is still a long and bumpy road back to price stability, 2 per cent.”