OPINION:
As the dust settles on this week's record-breaking inflation number, many economists are now picking the Reserve Bank will have to hike rates faster and higher.
Some see an unprecedented 75 basis point hike coming up in August.
Some have shifted forecasts for the OCR peak from 3.5 per cent up in line with market expectations of 4 per cent.
But there are also signs that - at 7.3 per cent - annual inflation may have peaked.
These trends can seem conflicting, but we need to recognise that even when inflation peaks the cost-of-living crunch will linger.
Inflation is cumulative, each quarter of rises piles on top of the last quarter.
So a falling rate of inflation, sadly, isn't the same as prices coming down.
Consumers ought to get some relief from pandemic peaks on some items. Petrol and basic food items like cheese tend to fluctuate a lot.
Broadly though, we shouldn't expect falling prices.
That would be deflation, a phenomenon we went close to a few years ago and which is considered a sign of very different problems in the economic engine.
Still, inflation data declining would be a good start, so here's hoping it has peaked.
John Carran, investment strategist and economist at broking firm Jarden, makes a strong case for that.
"Despondency about the high June quarter inflation result is understandable," he says.
"[But] the inflation news is likely to get better going forward for several reasons."
First, he highlights "clear signs" global inflation pressures are abating.
"Global commodity prices have been declining steeply in recent months. This should soon flow through to lower prices for petrol and tradeable goods, like food," he says.
"Global freight costs have also been coming down. While it may take a while for this to flow through to New Zealand, it could start to take the edge off prices for imported goods as the year progresses."
Okay that's good news - if it the global stability holds.
But what about domestic inflation?
The big worry for the Reserve Bank is around things like labour costs and the price of locally produced goods and services - non-tradeable inflation.
That part of the economy recorded an annual growth rate of 6.3 per cent and it tends to be a more persistent variety of price inflation.
Global prices are volatile, spiking and crashing by large percentages in short time frames.
Domestic pricing expectations can get entrenched.
Luckily this is also the part of the equation over which the Reserve Bank has some control. It's hiking interest rates hard and fast to slow domestic economic demand.
"A big factor that will likely take the sting out of inflation over the next six to 12 months is a cooling housing market," says Carran.
Housing-related costs, such as rents and the cost of building materials, have been the largest contributors to overall inflation over the past year, he notes.
In fact prices for the construction of new dwellings increased by 18 per cent in the June 2022 quarter, compared with the same period last year.
That followed an 18 per cent increase in the year to March and a 16 per cent increase in the year December 2021.
It has been as staggering (and well documented) shock to the sector.
The good news is that, historically, these rises have been highly correlated with house prices with a lag of around two to three quarters, Carran shows in his analysis.
"With house prices now down around 10 per cent from their peak earlier this year and flat from a year ago, rents and building costs should eventually follow."
In addition, rising interest rates and the cooling housing market are likely to dampen household spending, which should further ease pressure on prices from the demand side of the economy, he says.
That is the wealth effect.
Even if it's just a theoretical gain, homeowners feel wealthier when house prices are rising and their spending goes up.
The reverse is true when prices fall - although it may take some time to worry homeowners who've booked record price gains in the past few years.
Carran sees headline inflation starting to materially ease towards the end of this year and in the first half of 2023.
"However, there will be some residual inflation that will likely be hard to shift as a tight labour market and catch-up wage increases cause recent high inflation to reverberate to an extent," he says.
"It may take until at least the end of next year until inflation is within the Reserve Bank's 1-3 per cent inflation target."
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That's one of the more positive forecasts out there and it still represents a lot of price rises before we have this thing under control.
In the meantime even as inflation falls we'll likely see prices continue rising in many areas of our lives.
The only way we can avoid seeing our purchasing power decline is if wages catch up - which they almost certainly won't.
The Reserve Bank will get inflation back under control by hiking rates until it has squashed economic demand flat enough to put some slack back in the labour market.
That seems unfair. And it is.
But if labour costs keep rising businesses will have hike prices further and the whole thing becomes self-perpetuating.
The net result of the pandemic was always going to be a cost.
Issues of fairness and how the burden of that cost is shared are where the political debate about our economic response comes in.
There's no shortage of that right now.
The counterfactual to arguments about too much stimulus having been deployed is that we've all kept our jobs.
Inflation sucks, but rising prices are easier to manage than sudden mass unemployment - which was on the cards when the pandemic hit.
So, while this week's news was grim, we will get there.
Unlike the 1970s and 1980s, we don't have to build our inflation-fighting tools from scratch.
The economic repair job is already under way.
And given the widely held view that house prices were much too high already, then slamming them to beat inflation doesn't seem like such a bad strategy in the long term.
