Inflation pandemic, more interest rate booster shots

If there is anything we have all learnt from the past two years, it is that outlooks can change very quickly.  If all goes swimmingly well, a booming economy undented by any more shocks may need even higher interest rates than what we now forecast to keep growing demand in check with what we (and the rest of the world) can supply at a sustainable cost.  Conversely, further economic disruption that causes wallets to get lost down the side of the couch, or marked sensitivity to rising interest rates, could easily see the OCR peak at a lower level.  Whatever the peak, the key point is that short-term interest rates look like they have a lot further to rise, and people need to be mindful of how that will impact on their financial position over the next few years.  The door is slamming shut on the run of incredibly low interest rates.

Inflation expectations out this week will understandably be under the spotlight.  In highlighting how people perceive inflation will track, they give a gauge of people’s preparedness to accept rising prices or to try lifting prices.  Perception can bring about reality, which is what the RBNZ will be watching out for.