VIEW: J.P.Morgan: Stitch In Time Unpicks Pricing

J.P.Morgan note that “today the RBNZ notes the rise in mortgage rates – amongst other factors – has acted to reduce mortgage demand and house prices. It is comparatively quiet on the issue of how consumption, growth and business surveys are weakening, though it is perhaps hard to give much weight to that alongside a 50bp hike. In the minutes, headline inflation is deemed to be “rising largely as a result of disrupted supply chains and higher world commodity prices”, and is expected to hit 7% over the next couple of readings. Moving 50bp on this basis therefore shows the degree to which management of the optics around inflation, and fears of spillovers to expectations, are guiding action.”

• “The softening in activity is probably not going to drive a visible change in stance until it relieves capacity constraints, which still are evident, particularly in the labour market. There is significant uncertainty as to how quickly this will normalize. Borders are reopening, though the staff assumes this will only gradually ease labour shortages, as population outflows are expected to be significant too. This delays the filling of local skill shortages, while presumably also weighing on housing and growth. We still expect the next move will be a 25bp hike in May, as another 50bp would likely push the economy too far, particularly in dealing with an inflation overshoot that is mostly in tradables. The need for a 50bp move next meeting is therefore not obvious, and the ‘stitch in time’ argument will be hard to execute repeatedly.”