An independent economist warns there are challenging times ahead for Kiwis as inflation continues to bite and little evidence to suggest it will ease despite a rapid rise in interest rates from the Reserve Bank of New Zealand (RBNZ).
Inflation is hitting Kiwis hard, with our current annual consumer price index (CPI) sitting at 7.2 percent.
Annual inflation has skyrocketed from 4.9 percent in the September 2021 quarter compared to a whopping 7.2 percent currently. It comes after years of low inflation.
The latest economic forecast from Infometrics predicts inflation will still be 6.6 percent at the end of the year and at 3.8 percent by the end of 2024.
Infometrics principal economist Brad Olsen told AM Early on Monday the latest economic forecast shows New Zealand is still in a "challenging environment".
"We haven't seen much evidence of that at all coming through. We've seen food price inflation accelerate to 12 percent, which is the highest since 1989. There's still pressure on the likes of rents, construction materials and across the board, we're still talking to businesses and hearing there is a lot of pricing pressure yet to go through the system," Olsen told AM Early host Nicky Styris.
"What we're worried about is that New Zealand has had to, I guess, push the boat out a lot to try and get inflation under control... but so far we've got no evidence there are any fruits of that labour and that means that there are likely to be further challenges and further uncertainty for households in the year ahead."
Olsen said this is in vast contrast to overseas countries where inflation is starting to ease.
"Figures out of the US, for example, in recent days and indeed over the last month or two have highlighted that inflation is starting to bend the curve if you will and start to push to lower levels," Olsen said.
"Even in Australia, some of the earlier and more timely indications show that inflation is starting to pull back."
The latest Infometrics Foodstuffs grocery supply cost index was also released on Monday showing a continued increase from suppliers to supermarkets, which Olsen puts down to farmers facing higher input costs, which hasn't been helped by Cyclone Gabrielle.
"The Reserve Bank is not in my mind likely to look at those effects from the cyclone and take them as something further that needs to be pushed out of the inflation envelope."
Olsen believes those higher cost pressures Kiwis are seeing will see them adjust their mindsets.
"If that high inflation is something that households get stuck into their head, it does start to adjust what businesses and households are thinking about when it comes to their financial planning," Olsen said.
"Over the last year, the average New Zealand household has looked at inflation at above 7 percent each and every quarter for the last year or so and of course, if you've seen inflation of 7 percent last year, you go, 'Well it's likely to be higher next year I haven't seen any moderation, I haven't seen stuff all of a sudden get cheap when I go out shopping', therefore, businesses and households are in this mindset where cost increases, price increases come through, they continue to adjust their expectation upwards."
But Olsen said the one piece of good news Kiwis can hold onto is that the RBNZ is coming to the end of raising interest rates.
"A lot of the heavy lifting has been done but let's be real, there's a lot of Kiwi households out there that are paying high mortgages and they're about to go even higher," Olsen said.
"That is going to hurt, that's going to require some serious money to be saved in household budgets and that's money that can't be spent elsewhere in the economy."
Watch the full interview with Brad Olsen in the video above.
