Dawn chorus: Rate hikes by November?

TLDR & TLDL: Economists from ASB and BNZ have accelerated their views on when the Reserve Bank will have to put up interest rates to dampen inflationary pressures after fresh signs of labour shortages. (Stuff)

They now see the Reserve Bank hiking the Official Cash Rate from its current 0.25% as soon as November this year. Previously most economists saw the rate hikes starting in early to mid-2022, while the Reserve Bank itself forecast in late May it expected to start hiking from mid-2022.

Does the RBNZ risk hiking too early yet again? Photo: The Kaka

This follows a series of data releases showing the economy appearing to be straining at the seams to grow. The NZIER’s quarterly survey of business opinion released yesterday showed businesses saw the ease of finding skilled and unskilled labour at its worst ever levels since the survey started in 1961.

Really?

However, we have yet to see inflation figures showing a permanent outbreak and there is a risk New Zealand gets well ahead of the rest of the world. The Reserve Bank of Australia held its OCR at 0.1% yesterday and dialled back its QE by A$1b/week to A$4b/week, but said it didn’t expect to hike the OCR until it saw actual CPI inflation rise over 2% and wage inflation rise substantially, which it saw as not until 2024.

Also overnight, the US 10 year Treasury yield fell six basis points to 1.36%. New Zealand’s inflation hawks are squawking, but the wisdom of the crowds in global bond markets are less concerned.

The key sign that these inflation fears are real and permanent are when wages start to increase substantially and businesses are able to pass on their cost increases in the form of higher prices. So far, that hasn’t happened.

Also, it’s worth knowing that the RBA and Fed and ECB are all now running ‘whites of the eyes’ average inflation targeting policies that wait for actual inflation before they pull the trigger, which is different from the ‘shoot first, ask questions later’ policy used pre-Covid that saw central banks, including ours, prematurely hike in the last 10 years.

Our Reserve Bank is still using the old policy of acting in advance of actual evidence. By the way, here’s the Treasury forecasts for interest rates over the last 20 years or so, and the actual interest rate track.

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Scoops and news breaking this morning

Thomas Coughlan @coughlthom

Revenue Min. David Parker has been briefed by IRD on issues arising from FBT treatment of double-cab utes. He confirmed he's looking at what to do about that advice, including beefing up enforcement of FBT. Ute drivers be warned - IRD is watching.

nzherald.co.nzDavid Parker looks to close ute tax exemption, as Jacinda Ardern defends legitimate ute comment - NZ HeraldThe Government is looking at whether it should clamp down on ute drivers shirking tax.

Bernard Hickey @bernardchickey

Mental health: Union says acute wards too crowded to be safe or therapeutic, as patients put into offices

stuff.co.nzMental health: Union says acute wards too crowded to be safe or therapeutic, as patients put into officesThe main union for doctors says mental health wards in hospitals are often so crowded they are unsafe, with average occupancy bouncing over 100 per cent in some months.

Bernard Hickey @bernardchickey

MBIE found dedicated MIQ facilities an 'unfeasible' option | RNZ News

rnz.co.nzMBIE found dedicated MIQ facilities an ‘unfeasible’ optionMBIE confirms the government rejected “numerous proposals” to custom-build quarantine facilities, but ministers insist the idea is being genuinely considered.

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Signs o’ the times news

RNZ @radionz

#BREAKING Nurses across the country have voted to go ahead with planned strike action.

rnz.co.nzNurses vote to go ahead with planned strike actionNurses across the country have voted to go ahead with planned strike action.

The Spinoff @TheSpinoffTV

James Shaw is facing a Green Party co-leadership challenge from Dunedin activist James Cockle, reports @awbraae

thespinoff.co.nzJames Shaw facing Green co-leadership challenge from Dunedin activistThe Green Party co-leader James Shaw is being challenged for his job by an activist in Dunedin, who says the party has become too timid on the great challenges facing humanity. Alex Braae reports. Dunedin man James Cockle is throwing down a challenge to Greens co-leader James Shaw, saying he’s r

Bernard Hickey @bernardchickey

Cold turkeys in limbo land.

stuff.co.nzThousands of restaurateurs turn out the lightsThousands of restaurateurs have participated in a protest against the Government’s immigration policy.

Bernard Hickey @bernardchickey

Auckland liquor store boss failed to pay 'vulnerable' workers minimum wage

tvnz.co.nzAuckland liquor store boss failed to pay ‘vulnerable’ workers minimum wageTwo sets of records were kept — actual hours and another set per the employment agreement.

Bernard Hickey @bernardchickey

Who should pay to repair the damage and try to turn back the tide on climate change? Ratepayers and taxpayers who chose to buy and/or live out of the reach of rising sea levels? Or the people who don't believe in moral hazard?

stuff.co.nzWave-weary Wellington residents get action on sea rampWhen the digger arrived on Tuesday morning residents of Wellington’s Ōwhiro Bay were hopeful their pleas had been heard. They hadn’t.

Bernard Hickey @bernardchickey

Even the Government is struggling to go cold turkey on itself.... "Normally, the audit profession relies on bringing in auditors from overseas to manage the workload at this time of the year."

oag.parliament.nzShortage of auditors affecting when some audits can be completed6 July 2021: There is a bill before the House to extend the time frames for audits of Crown entities with end-of-year balance dates of 30 June, and annual reporting requirements of local authorities and council-controlled organisations.

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Charts of the day

Matt Burgess @MattBurgessNZ

Here is an estimate of the distributional effects of emissions reduction policies by NZIER in 2018 for Ministry for the Environment. High carbon prices hurt low-income households the most.

Dr Zoë Hyde @DrZoeHyde

Vietnam has had one of the best responses to COVID-19 in the world. They’ve crushed three waves of the virus with relative ease, including an outbreak of the alpha variant. But what worked before is not working against the delta variant. Take note, NSW, before it’s too late.

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Useful longer reads and listens

Michael Pascoe @MichaelPascoe01

"Rather than use several hundred thousand unemployed & impoverished people for wages control, a superior ambition would be to work to lower the 'natural rate' of unemployment by investing in the structural policies, education and training to achieve it."

thenewdaily.com.auMichael Pascoe: Taper time at the RBA, with money a little less easyThe Reserve Bank governor doesn’t schedule a media conference after a board meeting unless he has something to say. That’s what he’s doing at 4pm today.

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Som fun things

No Context Brits @NoContextBrits

British graffiti at its finest.

NowThis @nowthisnews

This steeplejack recorded selfie footage of what it’s like doing inspections at the top of the Chrysler Building — and let’s just say it’s not for the faint of heart 😰