ANZ: Inflation Blues

ANZ note that “the Q2 Quarterly Survey of Business Opinion (QSBO) displayed similar themes to our ANZ Business Outlook: businesses are very downbeat; activity indicators are weak; cost and pricing intentions are far too high, with capacity constraints acute (an inflation intensification story); employment intentions are faring a little better than most indicators.”

• “For broader economic momentum, it seems the only way from here is down. That’s not to say the economic fundamentals have suddenly broken; rather, the economy is running out of resource to grow (labour in particular). And while there’s bound to be an element of worry about the demand outlook too (given interest rates are on the rise and the housing market is in retreat), demand driven by a rapid increase in debt (both Government and household) was never going to be sustainable.”
• “In this environment, the only thing left for policy makers to do is focus on withdrawing demand and boosting supply. Trying to boost growth by adding to demand will only exacerbate the inflation problem. For the RBNZ, we see nothing in these data to stand in the way of 50bp hikes in both July and August. The RBNZ needs to be convinced that inflation pressures are softening, and that’s not what these data are saying (yet).”