ASB warns of high inflation, falling house prices

ASB is warning of continuing challenges from Covid 19, high inflation and worker shortages this year.

On interest rates, it comes close to but does not match the ANZ's forecast of a 3% peak OCR, saying only that it could reach 2.25% by the end of the year and rise further next year by an unspecified amount.

The ASB says Covid will hang heavily on the country during the year, with an outbreak of Omicron looking to be a matter of ‘when’ and not ‘if’.

This could increase employee absenteeism and aggravate existing labour shortages.

A further problem will be soaring inflation in New Zealand and abroad, which has been worsened by global supply chain disruptions.

Labour shortages will push up wages and collectively, inflationary pressure will impel the CPI above 6%, the highest real level since 1988.

ASB also says a year of huge price rises for housing will be followed by a fall this year, possibly 8% to 10% in inflation adjusted terms.

The bank is also looking closely at the outlook for interest rates. It says current market pricing has an additIonal 125 basis points added to the OCR over the coming year, with the growth rate looking set to end at 2.25% at the end of the year. However, there will be further rises in 2023, though it does not give a number.

ASB adds a rider, there is a lot of uncertainty right now and market pricing could be wrong. There are several upside and downside risks, such as unexpectedly persistent inflation or curtailed domestic spending which could upset current  predictions.

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