Each time the Reserve Bank releases its latest decision about the official cash rate (OCR), there’s always a tremendous amount of commentary and media coverage, and the latest edition was no exception. Given that inflation (and inflation expectations) has shown signs of slowing and that the labour market now also seems to be easing a little, it was no surprise that the OCR was unchanged at 5.5%. But the RBNZ’s projections did perhaps contain some surprises. What did they say in the cold light of day, and what might it mean for property?
First, the RBNZ’s forecasts for GDP growth, the labour market, and inflation were barely changed. They still think that the mild recession over Q4 2022 and Q1 this year has ended (with Q2 quarterly growth perhaps +0.5%), but that we might also experience a double-dip, with GDP falling again over Q3 and Q4 this year – but only by a total of about 0.4%.
The unemployment rate is anticipated to rise from the current level of 3.6% to a peak of 5.3% by the end of next year – but, crucially, driven much more by a more significant labour force (and reduced hiring activity) rather than mass job losses. Indeed, employment is only expected to drop by the smallest amount late this year and in early 2024 before rising again.
Headline CPI inflation may be stubborn at 6% again in Q3 this year before falling back within the 1-3% target by Q3 next year (2.7%). In other words, it’s not a fast return to target for the headline inflation rate – instead, it’s another year or so until we see ‘normality’ again.
Meanwhile, the forecast tweak from the Reserve Bank that generated much more scrutiny was the upward push...
