Inflation nation: High levels likely to remain for several years, economists predict

Swiping for purchases is predicted to remain painful for some time to come. Photo / Dean Purcell, File

From RNZ

New Zealanders are expected to face a tough year, with inflation, housing and a tight labour market set to put the screws on the economy.

Economic predictions from ASB and the Institute of Economic Research (NZIER) indicate inflation has probably peaked and is likely to remain at high levels for a couple of years before dropping back to the middle of the Reserve Bank's target range of one to three per cent annual inflation.

House prices were also expected to continue falling through to the middle of next year.

NZIER principal economist Christina Leung said higher interest rates had reduced the ability of households to borrow, which was also weighing on housing demand and was a drag on retail spending.

"The latest retail sales data show a slowing in retail spending, and we expect this to continue as households hunker down to weather these latest headwinds of rising living costs and increased mortgage repayments," Leung said.

The labour market was expected to continue to fuel high wage expectations.

However, ASB chief economist Nick Tuffley said the labour market was like a double-edged sword.

"On the one hand, we're seeing continued strong wage growth which will outpace inflation next year and lift people's purchasing power, but on the other hand this is going to be a real challenge for employers when it comes to finding and retaining people.

"Employers will need to start thinking longer term about how they cope with those challenges because we don't see much relief anytime soon."