Official Cash Rate: Leading economist predicts wage growth to outpace inflation later this year, relieving pressure on households battling cost of living crisis

A leading economist is predicting wage growth to outpace inflation later this year, relieving some pressure on households battling the cost of living crisis.

ANZ chief economist Sharon Zollner's comments come ahead of an expected double-hike to the official cash rate later on Wednesday as New Zealand continues to face cost-of-living pressures. 

A 50 basis point increase would be in line with what the main banks are expecting and would see the OCR hit 2 percent, the highest it's been since September 2016. This would also put the rate at its 'neutral' level.

Zollner told AM on Wednesday the Reserve Bank doesn't need to "panic" as their previous rate increases are already making impacts on the economy.  

In April, the Reserve Bank announced the OCR would jump by 50 basis points, which was the largest since May 2000.

"The Reserve Bank I don't think they need to panic. Yes inflation is very high but they're clearly getting traction with their rate increases, just look at house prices they have fallen in the last five months and the risk of a hard landing for the economy is real," she told AM host Ryan Bridge.  

"So they have some ground to make up because they were probably a little bit late to start raising interest rates but I think they'll feel comfortable that 50 is enough."

Zollner said even though households will worry about the OCR rising, she's optimistic wages will start to increase later this year.

"It does seem quite mean to raise interest rates when households are already under so much cost of living pressure, but the Reserve Bank is playing the long game," she told AM. 

"If we were to return to 1970s inflation then allowing that to happen wouldn't be doing households any favours at all.

"Of course, we are optimistic that real wages will turn positive again in the second half of this year, that basically, wage growth will start outpacing inflation, so some of the squeezes will come off on that side but the screws are still going on in the interest rate front." 

ANZ chief economist Sharon Zollner
ANZ chief economist Sharon Zollner Photo credit: AM

Zollner said the Revere Banks' main focus will be on controlling inflation. 

"I think at the moment the economy is under pressure, obviously with house prices up 50 percent in last three years from levels that were already considered overvalued, there is a fragility there imparticular," she explains. 

"I think that is the channel by which a hard landing could occur but on the other hand, the unemployment rate is really, really low and that does provide some sort of buffer for the economy to handle these interest rate increases but the Reserve Bank is more focused on the risk on the other side.

"If they don't raise interest rates aggressively enough, then they could lose control of inflation expectations, lose credibility and then we're really in a pickle."