All guns blazing for 2022!

Boom and just like that the year has kicked off all guns blazing

As we move into 2022, I believe this year and next will be a period of reset and reality. Central Banks around the world responded to Covid with the printing of vast amounts of money, now they are beginning to wind down the money printing, perceiving that the heat of the COVID pandemic crisis is passing and they need to reset and get back to “normal”.

Key themes to watch out for this year.

CCCFA

Amendment to the Credit Contracts and Consumer Finance Act 2003 (CCCFA) which came into effect from December 2021 have been making headlines. These amendments, which are an example of very poor legislation, have affected all lenders, not just banks and apply not only to home lending but business and consumer lending as well.

The key problem lies with the overly prescriptive nature for assessing loan affordability. Lenders are required to make extensive and sometimes invasive inquiries into customers spending habits, apply a buffer over and above this expenditure and independently verify information provided by customers. These regulations have the effect of treating every New Zealander as a “vulnerable borrower” when the significant majority would consider themselves to be no such thing.

The net result is that customers borrowing ability is being restricted, applications that would have been easily approved prior to December are now been declined.

If you had Uber eats on Monday, you can’t get a loan on Tuesday!

There have been universal calls from almost everyone in the finance and business sector for an immediate and urgent investigation into the effects of these amendments, watch this space!

Inflation

New Zealand inflation rate has hit a three decade high at 5.90% due to a perfect storm of inflation pressures much of which is a result of offshore factors. Disruptions to global manufacturing chains have resulted in shortages of many consumer goods and production inputs.

In simple terms this means that your purchasing power has declined. If your income has not risen by as much as the inflation rate you are getting poorer!

The annual rise is well beyond the Reserve Banks 1 – 3% target range, meaning it will have to keep lifting interest rates over the course of this year. The Official Cash Rate is currently at 0.75% with the next review due on 23rd February.

Labour shortages

As discussed in my last newsletter labour is in short supply here and overseas due to changing demographics like aging and retiring workers as well as border controls and immigration limits. Business will find it increasing difficult to retain their key staff required to run the business, let alone find new staff as the business grows. Business will need to pay their staff more, provide more flexible working conditions and be prepared to hire new staff who will need a high investment in training. The key point to note, is if the increase in labour costs is not matched by an increase in productivity, then this additional expenditure will be very inflationary at a time when inflation is a big issue.

One thing for sure the next 12 to 24 months will be very different from the last 24 months!