Reserve Bank's Inflation Fight May Hit Housing Market Hard

New Zealand's housing market and job seekers may be negatively impacted by the Reserve Bank's efforts to control inflation, experts warn. The central bank is expected to continue raising the official cash rate (OCR) in an attempt to keep inflation at a target of 2% over the medium term.

The OCR has been increased from 5.25% to 5.5%, and some economists predict it will rise again in October, February, and March next year. This move is intended to offset the effects of higher oil prices due to conflict in the Middle East and a lower exchange rate, which are pushing up inflation.

The housing market has already begun to feel the pinch, with house sales down across almost every region compared to last year. Rural sales were down everywhere except Otago, while Manawatu-Whanganui was the only region that saw an increase in sales.

Experts are concerned that the Reserve Bank's focus on inflation may come at a cost to other areas of the economy, including employment and consumer spending. BNZ chief economist Mike Jones noted that while fuel prices are high, consumer spending has stalled, and consumers are still doing it tough.