Cost of living: Economist Cameron Bagrie warns Kiwis need to lose jobs to get inflation under control

An independent economist has warned thousands of Kiwis will need to lose their jobs as part of an "economic trade-off" to get inflation under control.

Statistics NZ will release the latest Labour market statistics for the September quarter on Wednesday, with most economists expecting them to show an unemployment rate of 3.2 percent - compared with 3.3 percent in the June quarter.

Meanwhile, annual inflation is currently sitting at 7.2 percent 0 down slightly from its June peak of 7.3 percent but significantly higher than the Reserve Bank of New Zealand's (RBNZ) 1 to 3 percent target.

Independent economist Cameron Bagrie told AM on Tuesday the RBNZ will need to turn a "whole lot of cycles" if it wants to get inflation down and under control. 

"The real litmus test in regard to getting inflation down is, unfortunately, and [RBNZ Governor] Adrian Orr commented on it last week, was you got to get unemployment up," Bagrie told co-host Ryan Bridge. 

"We are way beyond maximum sustainable employment so, unfortunately, we are into that hard yards sort of story where to get inflation down, you've got to get the unemployment rate back up." 

But Bagrie didn't have high hopes for what the latest unemployment data will show when they're released on Wednesday. 

"If I look at what we're going to see in the data over the next 24 hours, I don't think we're going to see unemployment rocketing back up at the moment, that will be a 2023 story," he said. 

"So it's still going to be game on in regard to the Reserve Bank lifting interest rates and likely lifting interest rates reasonably aggressively."

But Bagrie said Kiwis could start seeing job losses before Christmas this year. 

"A lot of firms are going through the books at the moment and they're having a look at their profitability cost numbers over the next 12 months and the reports that are getting back from chief financial officers is a look, it's now game on in regard to we need to cut costs.

"That's not a great economic story in regard to where we are but it's, unfortunately, a necessary economic story in regard to getting inflation back down, there are trade-offs. The brutal reality here is you've got an economy where demand is exceeding supply." 

Bagrie added the RBNZ is going to "bludgeon the hell out of demand" until it gets back down in line with the supply and one of the "sacrificial lambs" is getting the unemployment rate back up.

He believes taming inflation is going to be much more difficult than it has been in the past. 

"Central banks will win, they will get inflation down. The issue is, 'What's going to be the economic cost on the other side?'

"I sort of tell people, 'Forget about the Asian crisis, forget about the GFC in regard to a downturn.' You talk to anybody that's over 50 and go back and have a look at what we experienced in the late 1980s, early 1990s. That was the last time we really had to break the back of inflation and it hurt, so welcome to 2023/2024. 

"Inflation is a big evil, we don't like it. Unfortunately, we're not going to like what we're going to experience on the other side to get inflation down."

Watch the full interview with Cameron Bagrie above.