“The Reserve Bank’s latest inflation expectations show a deteriorating outlook for the economy, and it reflects Labour’s approach to economic management,” says ACT Leader David Seymour.
“The Reserve Bank’s latest inflation expectations show a deteriorating outlook for the economy, and it reflects Labour’s approach to economic management,” says ACT Leader David Seymour.
“Inflation expectations are stubbornly high. One year from now and two years from now, the picture hasn’t changed since the survey three months ago. People expect inflation to be higher in a year’s time now than they did a year ago.
“They expect it to be 5.11 per cent this time next year, and 3.30 per cent in two years’ time. In other words, business and consumers should expect inflation to remain outside the Reserve Bank’s target band of 1-3 per cent for another year.
“These inflation expectation figures are bad news for borrrowers because the Reserve Bank will need to keep interest rates higher for longer. That includes mortgagees, and the Government with its $155 billion net debt.
“Mortgagees were starting to look forward to softening in monetary policy, but they are finding the Reserve Bank is not credible. People still expect inflation no matter how much Adrian Orr huffs, puffs, and raises the Official Cash Rate, so mortgage rates will have to stay hard when struggling households need them to soften.
“The Government faces a forecast $7.2 billion interest bill on its $155 billion debt in the year to this June. Higher inflation expectations lead to higher interest rates for the Government. $7.2 billion this year is dead money that must be taxed but cannot be spent, and these figures will get worse.
“Perhaps because of this deteriorating situation, economic growth expectations are down in the same survey. Respondents to the Bank’s survey expect the economy to basically stop, with an average expectation of 0.79 per cent this year. That’s down from an expectation of 1.27 per cent for the year ahead three months ago.
"None of this is surprising. The Government needs to do a number of basic things if it wants to beat inflation and restore confidence. They include:
- Stop wasting money on boondoggle projects. For example, if Labour can’t work out where Auckland light rail should go after five years, it should be canned
- Let immigrants come. Immigrants continue to report that New Zealand is a fortress to them, with Immigration New Zealand making it needlessly difficult to bring skilled people here
- Stop putting costs on to business with additional bureaucracy such as the so-called ‘Fair Pay Agreements’. New Zealanders will spend more time in admin and compliance, and less time being productive
- Rein in the Reserve Bank, ending the experiment with the dual mandate and decision-by-committee policies introduced by Labour, the Greens, and New Zealand First.
"Unfortunately, In Hipkins’ first month, the Government has only committed to growing the deficit by extending fuel subsidies, even as the oil price falls. New Zealanders deserve better leadership than that."