They say you can’t tell when you’re at the bottom of the economic cycle, but dammit, this winter has to be it ... the national mood is so glum it was described as “subterranean” in the June consumer confidence survey.

A quarter of Kiwi firms reduced their workforce in autumn, with another 10 per cent of firms saying they expected to lay off staff in winter. Company liquidations are the highest they’ve been in 10 years, and the construction industry is in dire straits. House prices keep falling, spending keeps falling … it’s grim.

We’re stuck in this tunnel, so where’s the light?

Things will change, because they always do. The economic cycle continues to turn, so eventually we will move from contraction back into expansion. The big indicator of a sea change will be inflation falling below three per cent, which will encourage the Reserve Bank to drop its official cash rate (OCR).

When the OCR is lower, the cost of mortgages and loans will fall, slowly giving homeowners more money in their pockets. It will be easier to get a loan, which will help consumers buy cars, homes and other things. Slowly, we’ll all start feeling slightly better off. We will spend a bit more, which will help businesses succeed, and they will grow and hire new people.

That’s the expansion phase of the economic cycle. Lovely. But it could still be some time before all this happens.

High inflation bleeds heavily, but refuses to die

Everyone is waiting on the Reserve Bank to cut the OCR, but it refuses to be rushed.

The Reserve Bank has stabbed high inflation and is watching it bleed, but seeing it weaken is not good enough. Inflation could still drag itself back up and try to fight, so the Reserve Bank will not back down until it has a death certificate in hand.

High inflation is proving extremely hard to kill, because some costs just keep rising. Insurance is a big one; rates another. Both are strongly influenced by the natural disasters Aotearoa has experienced over the past few years. Neither is responsive to lower household spending – we all keep paying rates and insurance, and there’s little room to negotiate. As these costs rise, they also push up rents, so everyone gets to share the pain.

Hopefully, the rate of inflation falls to two per cent soon. Unfortunately, predictions are that the OCR won’t drop until November at the earliest, and perhaps not until 2025. At that point, it won’t fall fast, either. It will drop slowly, and the impact will be felt gradually as loans come off their fixed terms.

With a smidge of good luck, we will rise from the bottom of the contractionary economic cycle by the end of this year and start heading back into expansion.

But households could be feeling the pinch for many months, or even years, to come.