An independent economist says the Reserve Bank still needs to "break a few bones" to get New Zealand's high inflation under control.
It comes after the Westpac Economic Overview August 2022, released on Tuesday, said the economy is at a turning point and economic growth will shift down a gear as the impact of inflation and higher interest rates is felt.
New Zealand's rate of inflation is currently running at around 7 percent, and is higher on some goods such as food. In response, the Reserve Bank has aggressively pushed up the official cash rate from 0.25 percent in August last year to 2.5 percent now.
It's widely predicted to rise to 3 percent on Wednesday when the next review is undertaken.
Independent economist Cameron Bagrie told AM on Tuesday the tightening by the Reserve Bank over the last 12 months is the most aggressive New Zealand has ever seen.
"If you look that historically, given the tightening the Reserve Bank has delivered so far, you would be pretty tempted to step back and do a David Lange stop for a cup of tea and see how things unfold for the next 6 to 12 months because they have tightened," Bagrie said.
"The flip side to that is that we are coming off such a hell of an inflationary shock in regard to what they need to do to get the economy back under control."
Bagrie said the Reserve Bank still needs to get out there and "break a few bones".
"On some levels, you could argue stop for the cup of tea, but on other levels, it looks like the Reserve Bank still needs to get out there and break a few economic bones before that inflation genie is going to get back in the bottle."
Bagrie said businesses are still struggling to attract employees, which is having an impact on the economy.
He said this has resulted in the economy in the last three months being weaker than anybody would have thought six months ago.
"The Reserve Bank is seeing those right economic nuances that we are suppressing demand. Of course, what we've got at the moment is a really big mismatch between demand versus supply, which is reflected within the inflation story," he said.
"The Reserve Bank is making really good headway and they'll be really encouraged with what they're seeing on the demand side of the equation. The flipside is, they're still seeing an awful lot of inflationary pressure, primarily coming through the labour market. You talk to any firm out there at the moment, what's the biggest economic problem? It's not a lack of orders, it's finding staff."
Watch the full interview with Cameron Bagrie above.
