All economists were wrong again about inflation as Moody’s downgrades New Zealand’s financial outlook to negative

ANZ was wrong.

ASB was wrong.

Westpac was wrong.

BNZ was wrong and even the Reserve Bank was wrong!

CPI was higher than the ‘Always look on the bright side of life’ rhetoric from the cheerleaders of free market capitalism – so when do we admit that we are in trouble now?

If inflation in New Zealand really hits 7.5%, the Reserve Bank inflation response won’t be optional — it will be brutal. And the idea that policymakers can simply “look through” it starts to sound less like strategy and more like wishful thinking.

The unemployment forecast is now 6%, with what could be a 7.5% inflation all because Trump started an illegal war with Genocide drenched Israel against Iran.

If inflation hits 7.5%, that means the OCR must be raised dramatically.

What happened when inflation last hit this level

Consider what happened last time.

COVID supply chain shut downs saw inflation at 7.3%.

The OCR before COVID was 2.25.

The Reserve Bank had to drive the OCR up to 5.5% to stop 7.3% inflation.

Our new Nordic Ice Queen Reserve Bank Governor with the steely gaze and glacial melt for blood can look down the barrel of the camera as many times as she likes to tell the market that she will “look through” this inflation spike – but how do you “look through” 7.5% inflation?

What a 7.5% inflation response would actually mean

To match the rate last time during COVID to counter a 7.3% inflation rate, we’d need three consecutive 1-point rate hikes this year alone.

Jumping from 2.25 to 5.25 this year will crush the economy and set it into a recession.

And let’s be clear, this insane illegal war adventure is only going to get worse.

Before COVID hit New Zealand, we had the luxury of seeing the damage it caused Italy.

Nothing forced our borders up quicker than watching corpse after corpse stacking up in Italy.

Likewise with the fuel crisis, it will impact Asian countries far more harshly and quicker than it impacts us because they will run out of fuel before we do.

That will give us a front row seat to what happens when a country runs dry and as we start seeing riots break out there, the sleepy hobbits of muddle NuZilind will suddenly realise that we are going to run dry next and that will spark immediate hoarding as the Government’s mirage of how many days fuel we have evaporates.

Kiwis are the most laid back culture in the world until we are not.

The not is coming.

And here it comes…

Moody’s downgrades New Zealand’s financial outlook to negative

New Zealand is “clearly on notice” after a second international rating agency downgraded the country’s financial outlook to negative, an economist says.

Infometrics’ principal economist Brad Olsen warned that Nicola Willis’ Budget next month was not “going to look great” and believed the country’s much-promised return to surplus could be pushed out by another year.

While affirming New Zealand’s Aaa credit rating, rating agency Moody’s shifted its financial outlook for the country to negative because of the risks posed by global economic and ‌geopolitical uncertainty.

“Inflation pressures also persist, including fuel price increases, stubborn non-tradeable housing costs and utility prices, and higher electricity costs,” the agency said in its report late yesterday.

In March ratings agency Fitch also downgraded New Zealand’s outlook from stable to negative, citing debt reduction concerns.

NZ Herald

…so.

When are we going to be honest about how this free market vandalism of the economy has failed us?