Jan 24 • 5M

Dawn Chorus: A backward looking lagging indicator

Inflation seen at 7.1% in December quarter, but risks are growing RBNZ will over-tighten just as inflation pressures are falling overseas and job cuts are mounting in the US

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Is the RBNZ at risk of overtightening in response to inflation after the worst of it has already passed by? Photo: Supplied

TLDR: The focus today will be on Chris Hipkins’ swearing-in as Prime Minister and his first Cabinet meeting in charge of a Government he says is focused totally on cost of living and inflation issues.

Cabinet will meet shortly after Consumer Price Index inflation data for the December quarter is released. Economists expect it to show annual inflation still up around the September quarter’s 32-year high of 7.2%, albeit less than the Reserve Bank’s (Te Pūtea Matua) forecast from late November of 7.5%.

But it is a backward-looking and lagging indicator of where inflation is headed. The nation and Cabinet will focus on the figure and there’s a growing danger the Reserve Bank will overtighten to convince the nation it has the hairiest chest when it comes to inflation.

The risk is the Reserve Bank hikes hard again on February 22 and adds to its ultra-hawkish ‘cool your jets’ rhetoric from its shocking November 23 decision, adding an even bigger downdraft to an economy this now cooling from last year’s hikes and rapid slowdowns overseas.

Elsewhere in the news overnight and this morning:

  • 3M announced it would cut 2,500 jobs globally, just as Microsoft is set to confirm 10,000 job cuts and Newell, a US consumer goods maker of Sharpie pens, Sunbeam appliances and other bits and bobs, announced 3,600 job cuts; Dow Jones

  • The United States is considering sending its Abrams battle tanks to Ukraine to help it fight Russia, the WSJ reported this morning, adding to the German-made Leopard 2s that Poland looks set to send and increasing the risks Russia sees it as a NATO-driven escalation; and,

  • The United States has confronted Beijing with evidence that suggests some Chinese state-owned companies may be providing assistance for Russia’s war effort in Ukraine, Bloomberg1 reported last night.

I go into more depth for paying subscribers below the paywall fold and in the podcast above.

Rabbits in the headlights of a backward-looking lagging indicator

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