“Grant Robertson alone has faith in Adrian Orr as inflation expectations rise, with more mortgage pain to come,” says ACT Leader David Seymour.
“Grant Robertson alone has faith in Adrian Orr as inflation expectations rise, with more mortgage pain to come,” says ACT Leader David Seymour.
“Today’s survey of inflation expectations show survey respondents expect inflation to be 5.34 per cent in a year’s time, higher than they expected last quarter. One year out Official Cash Rate Expectations are up 0.52 per cent in three months, meaning higher mortgages are on the way. In short, the market has no confidence in Adrian Orr on the same day as Grant Robertson gave him another five years in the job.
“The Survey of Expectations is the Reserve Bank’s quarterly survey of forecasters, economists, and industry leaders to find out what they think inflation will be in one year’s time and two years’ time. Expectations matter, because people can adjust their behaviour based on them, inflation expectations have a habit of becoming self-fulfilling.
“If people take the Central Bank seriously, then a metaphorical raised eyebrow can make all the difference. When your Reserve Bank Governor goes around explaining that the Reserve Bank of New Zeland is, in fact, a Kauri Tree, he’s less likely to be taken seriously.
“At the start of the year, expectations were for inflation to be 4.36 per cent in a year’s time. We’ve nearly reached that time and inflation is 7.2 per cent, so people have lifted their expectations for a year from now.
“Forecasters, economists, and industry leaders now expect inflation to be 5.34 per cent a year from now. Far from getting inflation under control, survey respondents believe Orr is losing control.
“Two-year expectations are for 3.84 per cent inflation. That is a slight improvement on the 3.93 per cent last quarter, but respondents are still saying Orr won’t be able to achieve his 1-3 per cent Target until 2025. By that time, inflation will have been above the target band for three years. This is a failure, but Robertson doesn’t think so because he just reappointed the guy who did it.
“With higher inflation comes higher interest rates. In this case, expectations for the Official Cash Rate one year out are up to 4.67 per cent. That’s up from 4.15 per cent just three months ago. 4.67 per cent Official Cash Rate means mortgage rates pushing 7 per cent.
“People are saying Orr is losing that battle against inflation with current settings and rates will need to go even higher. The picture is grim, grim, grim.
“Banks will be looking at today’s increased expectations and asking if the Reserve Bank will have to hike interest rates even further than previously thought. They may not have priced in the full extent of inflation and Official Cash Rate increases, so mortgage rates will have to be higher than previously thought.
“People squeezed by a cost-of-living crisis may now face even more mortgage pain thanks to Labour’s economic mismanagement. That Adrian Orr was reappointed right before today’s news simply adds insult to injury.
“What is clear is that we do not have a credible Reserve Bank. The legislative set up passed by Labour, the Monetary Policy Remit given by Grant Robertson, and the Reserve Bank Governor appointed by Labour are not working.
“The question is when they will take some responsibility for the cost-of-living crisis that is affecting New Zealanders up and down the country every day.”