A property economist warns the economy is continuing to struggle as house prices drop and costs increase.
A growing number of banks believe inflation has peaked but sky-high prices are still expected to bite.
ASB's chief economist believes inflation has peaked at 7.3 percent but said it's likely to stay high until at least 2024.
Infometrics Chief Forecaster Gareth Kiernan told AM Early on Wednesday interest rates are likely to stay high for a while, even if inflation starts dropping.
"It does take quite some time, nine to 18 months sometimes for those interest rate changes to have an effect," he told AM Early host Bernadine Oliver-Kerby.
"We know there is a weakening in demand, but that is going to take more time than we've had so far to actually flow through into pricing behaviour and really, when we look at the sort of signals we're getting through the economy, yes, petrol has come back and diesel has come back as well, but I think there are still major cost pressures being faced by businesses that probably will need to be passed on over the next few months."
House prices have been tumbling throughout 2022, with the latest QV House Price index for the three months ending in July showing the average national house price has dropped to below $1 million for the first time since September last year.
The index also showed the national average price of a home is now $989,790, dropping by 4.9 percent in the quarter.
But despite prices tumbling, Kiernan said developers are still struggling to cope with the rising building costs.
"We've been seeing a slowdown in the residential industry in particular. consents there have started to weaken on the housing side especially," he said.
"Townhouses are still increasing strongly, but there are signs that very, very strong demand that we had over the last couple of years has started to ease and that's not surprising given where house prices are going - they're down 10 percent from a year ago.
"Building costs are still rising rapidly and that's making the equation much more difficult for developers to go ahead with their projects."
The latest data on the construction sector is due to be released later on Wednesday by Statistics NZ, and Kiernan is expecting them to show business confidence continuing to lag.
"Business confidence right across the economy has been very weak through the course of this year and don't expect to see any change in that today in the numbers. You mentioned the cost pressures, and that is one area we'd be hoping to see a little bit of relief," he told AM Early.
"The Reserve Bank obviously has been doing a lot of work in terms of raising interest rates during the course of this year to try and get inflation under control but the difficulty is that we don't have any clear signs that it has turned yet and certainly previous confidence surveys haven't really shown any improvement there.
"So we'll be hoping for some of those pricing expectations and cost expectations to ease but it may be a little bit early in the pace for that and we may have to wait a few more months yet."
Watch the full interview with Gareth Kiernan above.
