The US has increased tariffs on most countries, and some countries have retaliated. Tariffs will reduce global trade and economic growth. Inflation will be higher in the US because their imports will cost more. If the US buys fewer goods, it could lower prices for other countries, including New Zealand.
The weaker global economy may hurt our exporters, but some may benefit if tariffs on us are lower than on other countries.
In both New Zealand and overseas, high uncertainty about tariffs is likely to cause businesses to delay some investment and hiring plans. Households may save more.
Tradables inflation remains low. Food prices are increasing, but petrol prices have fallen. Higher US tariffs might lower the cost of our imports if other countries send their goods here instead, but we don’t know for sure.
Non-tradables inflation has continued to decline. It’s still a bit higher than usual, but the weak economy means it will keep falling. Higher government-set prices, such as council rates and vehicle rego fees, are slowing the decline in non-tradables inflation.
Inflation is expected to increase temporarily this year due to higher electricity and food prices. However, we expect inflation to remain within our target range.
Economic activity declined in the middle of last year but is now recovering. Higher dairy and beef prices are boosting the incomes of farmers. Lower interest rates are encouraging households to spend more and businesses to invest.
It will take some time for low interest rates to have their full effect, particularly given higher global uncertainty.
We expect unemployment to start coming down later this year as the economy recovers and businesses hire more people.