A leading economist warns despite the New Zealand economy receiving some "good news" after coming out of a recession last week, it could quickly change as the Reserve Bank (RBNZ) continues to grapple with inflation.
Statistics NZ data from last week revealed GDP expanded 0.9 percent in the April-June quarter, meaning New Zealand came out of a technical recession.
But the cost of living crisis isn't finished with New Zealand, as inflation remains at six percent – higher than the RBNZ target range of 1-3 percent.
Independent economist Cameron Bagrie told AM on Tuesday while it wasn't "surprising" there was GDP growth for the June quarter, he was shocked by the "magnitude" of it.
He told AM co-host Laura Tupou the RBNZ will be watching the "good news" very closely, which could be bad news for borrowers.
"Unfortunately, good news carries a little bit of a hook when regards to bad news for borrowers... the more economic strength, resilience we see in the near term, the more governments, whether it be the incumbents or any future government, migration numbers are booming, the housing market has turned the corner," he said.
"The more we see prospects for economic strength in the next sort of six months, the more the Reserve Bank is going to be thinking about delivering a little bit of bad news because they can't have too much good news because that's inconsistent with getting inflation down over the next 12 to 24 months so we're in a bit of a pickle here.
"Yes, we like to celebrate being in better economic times and unfortunately, better economic times does not mean that inflationary thief is going to get back in jail and that's the big priority that we've got in the next 1 to 3 years because people do not like the economic consequences of higher inflation, because higher inflation hurts."
Bagrie warns fixed mortgage rates are continuing to increase, which he puts down to expectations that the official cash rate (OCR) is going to be higher for longer and there are fears the RBNZ could hike it again in the next three to six months.
It comes after Westpac and Kiwibank both announced on Monday they were adjusting their interest rates.
"Unfortunately, in order to get inflation down, the Reserve Bank needs to inflict some economic pain. They need to turn a whole lot of cycles," Bagrie said.
"One cycle is beyond their control. The commodity price cycle, they need to take that one. They need to turn the asset price cycle and the housing market is moving against them, why because migration is running close to 100,000.
"They need to break the back of what's called the spending cycle, the profit cycle and the job cycle."
Bagrie also warns unemployment will be on the rise over the next 12 months.
"We know people are spending less. Yes, nominal retail sales are up, but volumes are down. If you look at the tax take, you know the profit cycles are turning and if you look at the job cycle, there's about 15,000-17,000 more people on a benefit today compared to 12 months ago," he said.
"Now that's good for taming inflation but it's not great economic or social news out there. The unemployment rate is going to continue to move up in the next 12 months and that's an unfortunate necessity in regard to breaking the back of inflation."
Watch the full interview with Cameron Bagrie in the video above.
