Reserve Bank Potential Catalyst of New Inflationary Cycle

The paradoxical result is that the Reserve Bank retention of protracted higher interest rates to help reduce inflation may now be perpetuating a new inflationary cycle, primarily driven by increasing council rates, insurance, and business operating costs.

WELLINGTON, New Zealand - May 17, 2024 - PRLog -- Reserve Bank Potential Catalyst of New Inflationary Cycle

Trend Analysis indicates that the Reserve Bank of New Zealand's battle to temper inflation, primarily driven by COVID responses, is now entering a new inflationary cycle.  The new cycle appears to be underpinned by debt restructuring, primarily attributed to the ongoing high interest rates.

Analysis of the debt planning of 5 of the 11 region councils, 4 of the 11 city councils, and 8 of the 50 district councils (based on publicly available records) reveals substantive restructuring of debt is directly driven by the OCR.  All of the councils evaluated are planning substantive increases to rates and costs that will flow on to rate payers.

Therefore, councils are planning their rates increases based on the continuation of high debt servicing levels and increasing debt requirements, exacerbated by the statically high interest rates.

The paradoxical result is that the Reserve Bank retention of protracted higher interest rates to help reduce inflation may now be perpetuating a new inflationary cycle, primarily driven by increasing council rates, insurance, and business operating costs.

The catalyst for the new inflationary cycle is higher interest rates.

In the case of the New Zealand OCR, it appears that the inflationary cycle may have shifted to a new debt driven inflation rather than consumer driven inflation.

GOVERNMENT TAX RELIEF

Trend analysis shows that the government proposed tax cuts, even if substantive, will be supplanted by the rises in costs of business and council operations.

Tax relief will have no measurable impact on the overall economy, as trends indicate the inflationary pressures from local government rates rises alone will offset such measures.

NEW INFLATION AND OCR

Newly presented inflationary pressures are driving many sectors and will result in continued cost rises directly due to the longevity of the rates rises.

The trends indicate that an immediate tempering of OCR must combine with an injection of government funding to offset a portion of regional and local debt.  Otherwise, this new inflationary cycle will have a degrading impact on the overall economic engine.

Analysis indicates that one feasible method for stabilisation of the overall economy will be a return to non-extreme approaches to key monetary drivers, specifically focused on tempering the OCR and overall debt restructuring.

Trend Analysis Network is a think tank based in New Zealand created to identify and publish analytical results of future trends in politics, society, and economics.

Contact
Andrea Cordingly
***@trendanalysisnetwork.com
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Source: Trend Analysis Network

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