With the ongoing shortage of listings and rising construction costs, it looks like house prices will continue to rise at a pace well above the rate of inflation – which is where my interest rates comment becomes relevant.
Like all other economists I have been expecting a rise in the inflation rate in response to the strong recovery in our economy and accelerating growth in wages. But none of us expected that as of late-October, New Zealand’s inflation rate would be 4.9%.
Only five months ago the Reserve Bank were forecasting that inflation currently would be 2.5% and on that basis they have left monetary policy at record levels of looseness up until October 6 when the official cash rate was increased a small 0.25% to 0.5%.