Westpac acting chief economist Michael Gordon says consumers are expected to also face a number of shortages, in addition to price increases. File photo Photo: 123rf
Consumers are expected to tighten their belts as many more mortgaged homeowners are rolling over to much higher interest rates than before.
Westpac's latest Economic Overview said the Reserve Bank's past efforts to tighten monetary policy would come home to roost this year.
"While the economy is running much hotter now that it was in 2011, we expect that to turn significantly in the years ahead as higher interest rates bite," Westpac acting chief economist Michael Gordon said.
"And given the inherent lags in monetary policy, the Reserve Bank will need to start taking its foot off the brake even before inflation has returned to the target."
In the meantime, Gordon said consumers would face a number of shortages, in addition to price increases.
The destruction caused by January's floods and Cyclone Gabrielle was still difficult to gauge, but the rebuilding effort was likely to create a draw on the nation's resources over several years, he said.
"However, we should be careful about making too much of what this means for interest rates," Gordon said.
"The lesson from the Canterbury earthquakes was that conditions in the wider economy play a far greater role in determining inflation."
