Jacinda Ardern fights to bring inflation under control as ‘zero Covid’ strategy fails to protect the economy Business

“While public health restrictions to control the spread of the Delta variant will slow down in the second half of the year, government support for business and jobs has helped the economy overcome the impact,” said said policymakers.

“Nonetheless, some companies that deal directly with customers in Auckland and in various service industries are suffering from acute stress.”

They also fear the “risk that consumer and business confidence will weaken as Covid-19 spreads across the country, dragging down household spending and investment.”

Citi economist Faraz Syed said financial markets had anticipated a larger rise, but the central bank resisted as the economy remained weak due to the effects of lockdowns and nerves over reopening.

“The RBNZ’s decision to raise the official exchange rate by 0.25 percentage point instead of 0.5 was designed to balance the need to address lingering inflation concerns, but without tightening monetary conditions too much. and risk slowing down household activity, ”he said.

My Syed expects future rate hikes to depend on migration levels, as a labor shortage will add to inflationary pressures.

“The degree to which the labor market tightens may also depend on the outcome of net migration next year,” he said.

“On the one hand, reopening the borders will allow migrants to enter New Zealand, but there will likely be an influx of Kiwis leaving to live abroad in countries like neighboring Australia.”

New Zealand is also struggling with soaring house prices. The average cost of homeownership jumped about 30% in the 12 months leading up to September, but the central bank is hoping higher borrowing costs will keep inflation down.

“Our central forecast is that house price inflation will moderate over the coming year as prices adjust to reflect higher mortgage interest rates, lower population growth, policy measures introduced by the government and the Reserve Bank and more new houses under construction, ”the MPC mentioned.