How United States economic resilience could prolong New Zealand's inflation battle

ASB senior economist Mark Smith has warned that economic resilience in the United States could prolong New Zealand's inflation battle.   

The Reserve Bank will provide an Official Cash Rate update next Wednesday, but Smith isn't expecting interest rate relief until at least November, because while demand is trending down, US resilience poses a problem for New Zealand.   

"The US dollar is still quite strong, the New Zealand dollar is a bit weaker, and that means inflation in New Zealand will remain a bit higher for a bit longer," Smith told Newshub on Saturday.   

US Labor Department data reflects strength in the American economy, despite the Federal Reserve raising interest rates to cool inflation.  

The US workforce added more than 303,000 jobs in March, far more than the 192,000 predicted by economists, while the US unemployment rate dropped to 3.8 percent.  

In New Zealand, recession is the reality. Household spending is down, while government departments are proposing job cuts to find savings.  

"We already know there's been hundreds of job losses proposed and there are likely to be more to come," Public Service Association assistant secretary Fleur Fitzsimons told Newshub.   

"It is very upsetting for those individuals."  

Smith said the outlook for the public sector is not looking "too great".   

"Consumer sentiment in New Zealand is reasonably weak, whereas in the US it's reasonably strong."  

New Zealand's unemployment rate reached 5.2 percent at the height of the pandemic in 2020. By the end of the following year, it had dropped to 3.2 percent, but it's been rising ever since, currently at 4 percent.  

Stats NZ data released this week showed the number of filled jobs in New Zealand increased by 0.3 percent, but that didn't consider all the job cuts that have recently been announced.  

Infometrics economist Brad Olsen told Newshub the unemployment rate will likely rise towards 5 percent by the end of the year.  

"Yeah, that's certainly feasible," Smith said.   

It won't be welcome news for businesses, facing the ongoing battle of attracting customers during these tough economic times.