One of the elements that will have a bearing on the shape and speed of the recovery will be what happens with inflation.
Whether you own a TV or radio, read a newspaper, or get your news online, it’s a fairly safe bet that the bulk of the economic news you are receiving at the moment sounds fairly gloomy.
Even if we could ignore the news, which is often more noisy than informative, we can’t easily ignore that the price of food, petrol and many other essential goods have been rising sharply in recent months, putting pressure on household budgets.
This comes at a time when New Zealand house prices also seem to have peaked. After having accelerated strongly throughout much of 2021, helping homeowners at least ‘feel’ wealthier, housing market indicators now suggest prices could be easing in many regions. And, while the housing market begins to cool, mortgage rates are heading in the other direction (higher), which will only serve to crimp discretionary spending even further.
As spending reduces across the economy, and without our border and immigration policies currently enabling enough visiting holidaymakers or migrant workers to take up the slack, the immediate economic outlook appears weaker than the post-covid global reopening world that many envisaged was awaiting us this year.
While New Zealand’s official unemployment rate is at record lows, and our exporters continue to perform fairly well supplying a world still scrambling to satisfy widespread food and commodity shortages, these appear to be isolated rays of sunshine peeking out from behind a thickening bank of economic cloud.
Consumers and businesses have shown great resilience over the last few years. But the economic environment continues to be challenging and the pathway towards a sustainable economic recovery (perhaps with an initial period of low or negative growth), is unlikely to be smooth.