UPDATE: Orr chickens out waves white flag to market with puny 25 points!
Despite the Government’s Budget being called “boring”, a leading economist fears it could see the inflationary challenge hitting Kiwis harder for longer.
Budget 2023 was released last week against a backdrop of the cost of living crisis – inflation is at 6.7 percent and a high official cash rate (OCR).
The OCR has risen from 0.25 percent in August 2021 to the current rate of 5.25 percent as it tries to bring spiralling inflation – sitting at 6.7 percent – under control.
Many thought April’s hike could’ve been the last, but ASB economists are now picking a rise of 50 basis points to the official cash rate this week, and possibly a further 25bp hike in July – peaking at about 6 percent.
The bank was previously picking a 5.5 percent peak in 2023.
The narrative forming now is that because of the Government’s slightly larger spending (that is well within the neoliberal economic straightjacket), Orr will lift the OCR another 50 points.
Yes and no.
Yes, extra Government spending is fuelling some of the pressure but that ignores the reality that Orr was always going to lift the OCR by another 50 points!
Food inflation is at 12.4%!
The petrol tax subsidy is about to come off next month.
The full impact of the storm damage to our horticultural heartland is yet to realised.
100000 extra people will flood the economy with inflationary pressures.
Orr was always going to raise by 50points, believing this is all on Government spending simply ignore just how much trouble the NZ economy is actually in and how hard the shockwave will be.
UPDATE: BOOM – Orr chickens out and waves white flag to market and proclaims OCR Peak and inflation war is over with a puny 25 points in what must be day of political cowardice for a Reserve Bank caught between what the economics demand and political consideration to the Government of the day!
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The narrative of no more rises actually comes from Robertson who thinks Orr won’t need to raise them after his budget.
So let’s see if Robertson is right or if his budget is inflationary and rates go up.
So the government is going to raise more tax revenue with there awesome economic stimulus packages?
“…the reality that Orr was always going to lift the OCR by another 50 points!”
In which version of ‘reality’ is that?
Can I borrow your crystal ball Martyn?
Orr should go 75, even 100 imo
I confess to being confused .Inflation is high and Orr says interest rates need to go up to try and curb demand .by taking money away from home owners but to do this the banks need to put their rates up which means they make more profit . This profit then goes to shareholders and those with deposits so they have more to spend . The banks face criticism for making more profit but if they do not increase mortgages it would not do what the government wants . It seems this government has got us in a mess and thinks are getting worse as they flounder around.
Yep, you sound confused. The profit from Australian owned banks goes to mainly Australian Shareholders, and maybe some NZ Kiwisaver funds. People with positive money in the bank and without a mortgage are mainly pensioners, who wont feel rich when their 6 month fixed deposit comes in at $220 return rather than $150, particularly when they next need to buy a block of cheese. No-one feels better off.
As Mortgage rates go up, everyone with a mortgage (who bought in the last 20 years at least) has more expense and stops any discretionary spend, which then affects cafes, pubs, restaurants, movies, car dealers, holday destinations etc.
You are accurate that the cause is the government and they are making it worse as they flounder around!
The Banks and the Supermarkets are having a Field Day and screwing the average New Zealander blind IMHO ?
Oh, how we have short memories. Just a few years back governments were cautioned about ‘printing money’ hand over fist, arguably to save the economy in the fallout from CoV19 lockdowns. I’m pretty sure that most economists, govt advisors and politicians alike, of all shades, knew what was coming. Disrupted supply chains and subsequent price taking.
Wayne Hope (TDB) and Tim Hazledine are on to it, to quote, in the aftermath of CoV19 price selling by firms with real market power drive inflation. Hazledine would argue that the supermarket duopoly, the handful of privatized power companies and the big 5 off-shore-controlled banks are the price makers who drive up inflation while the rest of us struggle.
The RBNZ? The government? Dont hold your breath. It’s just an endless game of trying to deal to the (un)intended consequences.
Several variations exist of “Destroy the village/town in order to save it”–the provenance of that statement by an unnamed US Major, as reported by war correspondent Peter Arnett at the Battle of Bến Tre, 31 Jan 1968, has long been argued over online.
Regardless, when TDB Editor Martyn uses the phrase in conjunction with unelected Reserve Bank head honcho Adrian Orr it is quite clear what he means. This ponce is happy to inflict pain and suffering on ordinary New Zealanders, and to increase unemployment. So what is he really up to, given that much inflation is plain corporate price gouging because they can get away with it.
What Mr Orr is trying to save is nothing less than finance capital’s profits (yes the Aussie Banks) and the entrenched NZ neo liberal state.
There was a second tier, no nasty case manager, COVID benefit for middle class people. Will there perhaps be a similar “hero of the nation” benefit for those made jobless in the interests of fighting inflation?
There really needs to be a new NZCTU leadership, people that will battle for the working class everyday in the media and at workplaces. Monetarism will roll on until there is fightback.
In this post, Martyn doubles down on his economic illiteracy.
The only thing worth saying here is: “has the government’s budget increased or decreased inflationary pressures?”
It’s obviously increased it so everything else is irrelevant.
Btw the government could have spent slightly less in this budget than anticipated tipping things towards a 25 bps.
Heck there are even budgets that could lead to a 0 bps hike here.
To suggest that regardless of what the budget is, it’s always going to be 50 bps is, I’m sorry, but Martyn, that is just really really really dumb.
We are literally talking about spending pressures in the context of an entity who’s spending accounts for 30% of total spending in the economy announcing it’s spending intentions.
This is why I was against so many new bonds being issued. I understand completely that it was to avoid a recession but then the Reserve Bank kept spouting the possibility of actually creating a recession for a short period of time this year directly before a general election, and now the Reserve Bank continues to raise the official cash rate which adds to our inflationary pressures.
All deficit spending by the government adds to inflation, since all new debt will be spent into the economy using money that didn’t exist prior to the issuing of said debt. It’s why a balanced budget (or better yet a budget surplus) right now by heavily cutting spending is what must be done. Of course Labour, who created this inflationary environment, are doubling down. Rates will go to 8%-10% before this is over. NZ voted for this – and evidently want more punishment. You reap what you sow.
I agree. You real what you sow. If you take on debt in order to spend, you have inflation and interest accruing on the debt. A balanced budget is what is needed.
Orr basically fired the gun for the housing market to go off to the races again. He almost creamed himself talking about the high immigration numbers. Robbo gave this elitist an extension. Sack them both.
May be Orr’s bet is that he can get away with a small rise because after the election he gets a chunk of govt spending reduction from ACT Austerity or a private spending reduction from TMP Wealth Taxes.