Inflation

6 February 2025

Gerald Mullaney

An unexpert expert view           

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The risks are present, with inflation with concerns such as, the introduction of

tariffs. The introduction of tariffs could cause prices to increase therefore causing inflation to trend upwards.

Cost to some business are increasing and the pressure to increase prices

is increasing. The business are having difficulty increasing prices as demand drops. The nett result is lower profits, no profits, change the model of business or go broke.

Due to unemployment increasing to 5.1% as at Feb 2025, this is helping decrease demand and keep prices in check. At the moment, plus there are other suppliers

who can and are ready to supply at lower prices due to a different business

model with lower overheads such as no rent, rates. insurance, high wages,

high taxes generally low operating costs thus containing inflation by default.

The high cost of debt is causing discretionary spending to fall away thus having the effect of containing inflation.

Wage growth has also fallen from 6.90% in 2024 to 3.90% currently to Jan 2025 this

also has an effect of reducing demand and containing inflation.

The other concern is the exchange rate hovering around usd/nz .55/56 cents as of Feb 2025 to the NZD the lower it goes it will have the effect of importing inflation on all the countries imports. The lower dollar may cause a boom in tourism, the positive effect, with the country's exports becoming cheaper to overseas buyers and consumers causing an export boom.

Therefore, the concern is, inflation which is fluid and the effect on retail interest rate could cause the RBNZ to stop reducing the OCR or it may reach a low and the RBNZ is forced to rapidly increase the OCR in a matter of weeks or in a few months of reaching a low to contain and breakout of inflation.

Monitoring inflation has become a critical activity in interest rate risk management.

There are two issues to focused on

1. Inflation

2. Bank reducing the retail interest rates by reducing their margins.

   
   

   The up-and-coming events will reward the vigilant who take business matters seriously.