It’s official, increasing interest rates are starting to ‘hurt’. While it seems a little perverse that the Reserve Bank’s solution to prices rising too quickly is to raise the price of something, it does appear to be having the intended effect with inflation beginning to fall. Obviously, inflation falling is good news, but how do we make sure that we ‘get through’ with these higher rates?
It might be cold comfort, but historically, current interest rates aren’t all that high. In fact, according to Trading Economics, from 1985 until now, the average interest rate has been 6.73%. They peaked at eye-watering levels in the mid-1980’s when inflation was truly rampant. While rates are more than they were a while ago, they could be worse! (Not what we are expecting fyi)
So, if current interest rates aren’t ‘too bad’ by historic standards, should we be expecting them to drop back down? Given the number of banks now offering term deposits that are 6% or more with durations of longer than 12 months, it doesn’t appear that rates will be dropping like stones. It’s probably sensible to plan for rates to be in this neighbourhood for a while yet.
If you are feeling the pinch, then there is an abundance of advice on how to cut your spending. Much of the advice is generic and somewhat over-simplified. But some of it is sound advice. This list from Money Hub is from a little while ago now, but most of it still applies. If you are looking to check your spending, have a flick through their list here.
And if your debt is dragging you down, Get in contact.
Spend spend spend
And speaking of spending, as a nation, we seem to excel at it. When considering the whole of NZ, we consistently buy more stuff than we sell – or put more simply: we spend more than we earn – when we interact with other nations. This is measured by something called the Balance of Payments; a measure of what, as a nation, we bring in vs what we fritter away. And here, NZ is a leader –we run the biggest deficit in the OECD. Yup, out of our peer nations, NZ is living beyond it’s means by the most. You can check out the data here.
There are a number of factors that underpin this, not least is NZ’s poor and declining productivity. Regrettably, none of the political parties vying for your vote seem to be turning their attention to these (or a number of other)significant issues and are instead focused instead on their various lolly-scrambles. We are a politically neutral organisation – which is to say that we are disappointed by all sides of the political spectrum – but would have hoped that at least some of our political leaders would take some action around this. So, if you happen across an MP out shaking hands on the campaign trail, ask them what their thoughts are about the Balance of Payments deficit and our low and falling productivity. Then you can join us in our disappointment!