Breakfast briefing; It's not going to be transitory

Business / news

US inflation jumps again; Japanese machine tool orders recover; China PPI leaps; Aussie money laundering detail revealed; UST 10yr 1.55%, oil lower and gold higher; NZ$1 = 70.9 USc; TWI-5 = 74.9

11th Nov 21, 7:28am by David Chaston

Here's our summary of key economic events overnight that affect New Zealand with news it is all about consumer inflation, and the market reactions that followed.

The US CPI came in way above its expected high level. It was running at 5.4% in September and was expected to rise to 5.8% in October. But the actual October rise was by 6.2%. Even their 'core inflation' data pushed on up sharply higher than expected from 4.0% in September to 4.6% in October. Their headline inflation rate is the highest in more than 30 years; their core inflation rate is the same.

The largest increases in this data are for energy-related costs (+30%), but nearly everything else rose sharply as well like food (+5.3%) and apparel (+4.3%). The only major category holding the line has been medical and healthcare costs.

Tomorrow is Veterans Day in the US, a Federal holiday, so we got some data usually due out on their Thursday's a day earlier. And that includes their weekly jobless claims data update. Another +254,000 people signed up for these benefits last week and a small increase from the previous week. There are now 1.9 mln people on these programs and basically back to their pre-pandemic level.

Japanese machine tool orders impressed yet again, up more than +80% above year ago levels and +70% higher than October 2019 levels. Even if there are inflationary aspects to discount, these clearly indicate company boardrooms have authorised recovering capital investment plans. They take them back to the very healthy 2018 levels.

China's CPI inflation rate rose to 1.5% in October from 0.7% in September, but this was a rise that was expected. And small as it is, consumer inflation is creeping back in China.

But their producer prices rose at a faster rate, up +13.5% in a year and well above the +10.7% rise in September. It is this acceleration that may have global consequences.

As expected, new yuan loans in China fell sharply in October but at least they came in slightly better than what was expected.

We are now right at the sharp end of the Evergrande crisis. Some bondholders report have not received coupon payments by the end of 30-day grace periods at close of Asia business yesterday, which may trigger default action.

In Hong Kong, they are moving to close some schools. That is because emigration is continuing apace there as Beijing bites the City hard.

German CPI inflation was confirmed at the 4.5% their earlier 'flash report' had signaled.

Elsewhere in Europe, courts there have upheld the giant US$2.8 bln anti-trust fine on Google, adding new momentum to the bloc’s assault on big tech companies.

In Australia, Austrac, the Australian Federal Police and the Australian Criminal Intelligence Commission told a parliamentary hearing into Australia’s money-laundering laws that criminals are using lawyers, accountants and real estate agents to launder tens of billions of dollars through the Australian property market each year. Austrac testified that in 2020, Chinese interests laundered AU$1 bln through real estate transactions, and they pointed out that there were times when prospective homeowners would be competing against money launderers at auctions.

In Australia Delta cases in Victoria have leveled out as 1003 cases were reported there today. There are now 15,031 active cases in the state and there were another 14 deaths yesterday. In NSW there were another 217 new community cases reported today with 2,762 active locally acquired cases, and they had another 3 deaths yesterday. Queensland is reporting no new cases. The ACT has 19 new cases. Overall in Australia, just over 81% of eligible Aussies are fully vaccinated, plus 8% have now had one shot so far.

The UST 10yr yield opens today at 1.55% and up a very sharp +12 bps since this time yesterday and rising. The US 2-10 rate curve starts today only marginally steeper at +103 bps. And their 1-5 curve is however much steeper and also at +103 bps, while their 3m-10 year curve is also much steeper at +147 bps. The Australian Govt ten year benchmark rate is up +6 bps at 1.82%. The China Govt ten year bond is up +1 bp at 2.93%. The New Zealand Govt ten year is down -1 bp at 2.54%.

In equity markets, Wall Street has started their Wednesday session with a -0.6% fall in the S&P500. Overnight, European markets were positive by very mixed, with Paris flat and London up +0.7%. Yesterday, Tokyo fell another -0.6%, but both Hong Kong rose +0.7% with a later burst. But Shanghai fell -0.4%. The ASX200 ended -0.1% lower, and the NZX50 ended down -0.5%.

The price of gold will start today up +US$25 to US$1854/oz and to a 100 day high. Most of this rise happened after the London market closed.

And oil prices are softer by about -50 USc and are now at just over US$81/bbl in the US, while the international Brent price is now just under US$83/bbl.

The Kiwi dollar opens today giving up more it its recent gains and is back to 70.9 USc. Against the Australian dollar we are softer at 96.3 AUc. Against the euro we are unchanged at 61.5 euro cents. That means our TWI-5 starts today at just on 74.9 and back to where it was on Monday.

The bitcoin price has risen to a new record high and is now at US$68,616 and a +2.8% rise from this time yesterday. It is probably getting a push as some sort of inflation hedge because this latest rise came following the US CPI data. Volatility over the past 24 hours has moderate at just over +/-2.2%.

The easiest place to stay up with event risk today is by following our Economic Calendar here ».

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104 Comments

by Pacman_46 | 11th Nov 21, 7:31am 1636569084

Bitcoin doing what it was designed to do. Maybe they need to take some more stuff out of the CPI basket to control inflation.

by donny11 | 11th Nov 21, 8:22am 1636572173

This is what I was thinking. The fact that food & oil is still in there is a bit silly. If we remove these items then cpi should fall back into the 1-3% range. We will then we will be in a position to inject another 100-200 billion into the system to drive down interest rates & pump property prices another 20%. Modern problems require modern solutions.

by powerdownkiwi | 11th Nov 21, 9:30am 1636576242

Chuckle.

"The largest increases in this data are for energy-related costs (+30%), but nearly everything else rose sharply"

Actually, everything is energy-related. Not one thing isn't, so the correlation is zero surprise.

by murray86 | 11th Nov 21, 7:41am 1636569718

So the Australian Police have identified that criminals have been laundering dirty money through the property market. could it have happened here before the foreign buyer clamps came on, and could it still be happening? I think very likely.

Launderers, I am told, expect to lose a percentage in the process, but the consequences of them playing in this market are significant and on-going as legitimate buyers are forced to go higher to get in and starting a trend that is obvious. While the launderers may actually profit from this action everyone else pays.

This really highlights why a register of all home owners would be an extremely valuable tool in regulating the market.

by bw | 11th Nov 21, 8:20am 1636572035

What's the phrase I'm searching for? Oh, that's right - "Whatever it takes"

by frazz | 11th Nov 21, 7:53am 1636570434

"Australia’s money-laundering laws that criminals are using lawyers, accountants and real estate agents to launder tens of billions of dollars through the Australian property market each year."

I thought only Bitcoin was used by criminals these days..go figure? I wonder how much has flowed through the NZ market?

by VTHO | 11th Nov 21, 8:09am 1636571359

Ah yes the old "Bitcoin is only used by criminals" FUD. To be fair I haven't seen that line trotted out in a while, perhaps we are past that stage.

by frazz | 11th Nov 21, 8:10am 1636571449

I doubt it...

by Galloleous | 11th Nov 21, 11:54am 1636584845

Latest data analysis puts money laundering at 0.3% of all Bitcoin activity.

https://news.bitcoin.com/crypto-crime-fell-0-3-cryptocurrency-activity/

From last year, but the NFT market might have cranked that up a bit.

Good old USD is still the best tool <3

by DTRH | 11th Nov 21, 8:12am 1636571558

People are finally waking up around inflation you only have to go shopping to see that prices are going up.This will lift bonds around the world, interest rates will continue there upward path. This will take down house prices very quickly hopefully to a level that the average wage earner in NZ can afford to buy a house without just existing. As for money laundering in housing market so many times I have seen locals being priced out of homes this would not surprise me if it’s happening here as well as Australia.

by GV 27 | 11th Nov 21, 8:16am 1636571818

Why do people assume that the same economic conditions that would lead to houses suddenly becoming 'affordable' (roughly 50% drop or more) wouldn't affect employment? Huge numbers of recent FHBs underwater, massive contractions in discretionary spending... but sure, everyone is going to magically keep their job and suddenly afford a house.

by DTRH | 11th Nov 21, 8:32am 1636572778

Sounds like you have not gone through a time where interest are high this can and will take down housing prices. The market is 10 times what the average wage couple in NZ how is that sustainable

by powerdownkiwi | 11th Nov 21, 8:44am 1636573476

dtrh - we were having that discussion here, over a decade ago. Hugh P and his Demographia outfit were spot on pointing out the impossibility of the multiple, even then.

Where he wasn't spot on, was in that he, like almost all economics types, assumed we could grow our way out of the problem. We couldn't then, and we even more can't, now. Remember that 'all else being equal' is the default assumption of anyone peddling a single-issue barrow, but all else is not equal in Systems - there are limits, feed-back loops, repercussions......

by DTRH | 11th Nov 21, 9:30am 1636576239

We are now at a place that inflation is high people are losing purchasing power at the same time when a house is already beyond average wage earners in Auckland 1.2 million every 1% interest rate rise will cost them 1k a month extra. 10 years ago prices were maybe 70% cheaper and people had wriggle room not any more people a up to there necks in debt.

by RickStrauss | 11th Nov 21, 12:24pm 1636586699

And given the high asset prices are sponsored by government and central bank policies and subsidies, the question is really why this welfare scheme is limited only to those with assets and not more broadly spread. Given the hardship this welfare scheme has created now, as you note...

by Rumpole | 11th Nov 21, 12:52pm 1636588371

Average Kiwi Mtge about 600k, 3 year loans about +2% + +$12,000 a year more when re fixing, $1,000 a month less discretionery spending power will have effects unless the Minister of Fairies & Finance has a solution no one else in the world has found, I think NZ is in for a rather nasty wake up call. ardern and co should order their stainless steel underwear now.

by Fluffybunny | 12th Nov 21, 7:40am 1636656004

They have found a solution... QE/Money printing...

by Spiceeh | 11th Nov 21, 2:43pm 1636595014

Have you seen this PDK? https://www.youtube.com/watch?v=-PW74Hzw0Po

I'm about to read his books, but the cynic in me thinks it doesn't matter how much we know about how to fix our problems, unless we 'fix' the rich preventing us fixing them.

by murray86 | 11th Nov 21, 2:51pm 1636595472

"it doesn't matter how much we know about how to fix our problems, unless we 'fix' the rich preventing us fixing them."

This one comment should be called as the comment of the year. Brilliant!

by GV 27 | 11th Nov 21, 9:59am 1636577985

You're living in la-la land if you think the housing market unwinding will have zero wider economic fall-out.

by DTRH | 11th Nov 21, 11:47am 1636584427

I don’t think it will not effect the wider economic fallout not to sure how you got to that conclusion, the whole world will go into a recession NZ house prices are going to fall huge amount people are going struggle.if you have paid 1.2 million for a house in Auckland it going to cost you so much on interest at 7-8% 7000 a month if you don’t think that not going to effect house prices you are in la la land. This is the same amount the average wage couple has after tax how are they going to live of the land

by GV 27 | 11th Nov 21, 12:02pm 1636585374

I'm not saying it won't have any impact on house prices, but the idea that it will suddenly make prices 'affordable' ignores the fact a huge amount of people will suddenly find themselves without jobs if it does happen.

It's no good having houses that are affordable for the current average wage earner if we smack 10% unemployment and a bunch of average wage earners are suddenly out of work - they're not going to be buying houses any time soon then, are they?

by blobbles | 11th Nov 21, 12:22pm 1636586558

Not right away no. But as we have seen multiple times in the past, from the ashes of an economic/financial system that was pumping up assets to absurd levels, comes a new and better one, more fit for the people those systems they are supposed to serve. Until it all happens again, just in a different way...

If a whole stack of zombie companies get taken down, sure it will hurt the economy. But by definition, those zombie companies NEED to fail to return some sort of normalcy to risk and markets. Advocating for the opposite is plain stupid IMO.

by Rumpole | 11th Nov 21, 12:54pm 1636588485

Did you miss out the word not between will & have?

by bw | 11th Nov 21, 8:32am 1636572724

What will purchasers of anything do in the face of rising prices and stagnant incomes?

Choose a replacement product at a lesser quality and at a lower price point- be that wine, EVs, fresh fish or a home.

Eventually, the stuff at, or near, the Top ends up unsold. Then what? (Rhetorical question, there)

e.g. (Lower end retailer) "Marks & Spencer surges back to life after .. sales were boosted ....after a string of rivals went bust."

by HouseMouse | 11th Nov 21, 8:45am 1636573506

There's always a market for the really top end stuff. It's more the stuff at the high end of the mid range market that suffers.

by Rob Reid | 11th Nov 21, 9:31am 1636576260

I've been listening to Steven Van Metre for a while. Recently he brought up a long-view chart showing a tendency for prices to rise and then get rejected by consumers and fall back, because real wages haven't improved for 40 years. His general view seems to be that inflation won't run hot much longer.

by Spiceeh | 11th Nov 21, 2:49pm 1636595395

Does government *really* want wages to rise? | Ask An Economist https://www.youtube.com/watch?v=R8Db4Fyz4vw

and(it's universal because, you know, neoliberalism...)

Australia's Wage Stagnation Crisis Explained | Carmichael Centre https://www.youtube.com/watch?v=BvGHOZtZWHw

by murray86 | 11th Nov 21, 8:34am 1636572876

"...to a level that the average wage earner in NZ can afford to buy a house without just existing" Not sure about this comment. I bought my first home in the early 80's in Auckland. A very basic first home in a nappy valley (the common people side of West Harbour), and on my very ordinary salary from the Airforce. We stretched every way we could to afford it, cut corners everywhere. Interest rates at the time were 15 - 18% (they peaked at 23% from memory). We had multiple loans to make it work and without a Government Servant loan at 3% and my wife's staff loan from the bank at 5% we would never have been able to do it. As it was we were living on a very thin knife edge for quite a while under that load. Definitely no luxuries. if there was a cheaper way to do something, we found it and did it. Wasn't easy, but i think this is largely normal for young first home buyers. I must admit though, I cringe at the size of loading they take on today, but do know how they feel.

by frazz | 11th Nov 21, 8:45am 1636573556

On offence Murry but get a bit tired of these stories..you were first in the line in the house ponzi scheme, paid it off in I guess under 10 years? I am sure you lived on next to nothing but had plenty of time together in the weekends and after to work to hang out with the kids. That same house is now worth over a million if it is still there...?

"but do know how they feel"...sorry I disagree

by murray86 | 11th Nov 21, 8:59am 1636574395

Frazz I didn't pay it off in 10 years. the mortgages were for 25, and we had to push the bank to give us that as the norm for the time was 20 max. I got posted to Ohakea well before that.

But yes the house is still there, and QV says $990,000! $925,000 more than what we paid for it. Shocking for what it is.

But the point is that no matter what generation is trying to get into owning their first home, the experience is painful and requires considerable sacrifice. The current generations make it sound like this is the first time it has ever happened and blame my generation for it. But I had as much control over what the market was doing then, as they do today.

by The Person | 11th Nov 21, 9:19am 1636575564

median income to median house price ratios say no you don't know what it's like for the current generation. 20% mortgage rates are easy when wages are also inflating at a similar pace.

by murray86 | 11th Nov 21, 9:38am 1636576731

The thing is our wages were not inflating. In that period the military went for around 12 years without even cost of living increases, so there was no wage inflation for me that made it easier.

I am not disputing that the market is out of control. I firmly side with the young today when they argue that it is not a fair market, and that is a government failure on properly regulating both the markets and the banks. The markets because they are too easy to be manipulated, and the banks for pumping ever more credit into those markets to create out of control inflation. A real concern now would be a knee jerk reaction that penalises first home buyers the most.

In my time it was unconscionable to accept homeless living on the streets, but somehow that has become acceptable? Why? Even worse the homeless on the streets now includes young families. How can any Government sit on it's hands and watch this happening and do nothing? Both john Key's and Helen Clark's did just that. It is not the boomers, but the politicians who were and are the problem. Post boomer generations have been voters since 1984, and they have not effected any change either but have watched over an ever accelerating decline. So if boomers are the problem, post boomers are too.

by The Person | 11th Nov 21, 10:00am 1636578006

"Thanks to inflation the average weekly wage soared from $285 in 1984 to $529 in 1989,"

https://nzhistory.govt.nz/culture/the-1980s/overview

by murray86 | 11th Nov 21, 10:16am 1636578993

Not for the military, where I worked it didn't.

Curiously, at the time, I had a young Maori chap working for me who came to me for advice. He had three children and another on the way, and wanted to buy a house. He was concerned that if he took a Maori affairs loan (3%, and bigger than the GS one), and other support from Maori Affairs, that those he worked with would resent this. We worked out that with all the support he qualified for (much more than I did), he could make it work.

A part of the discussion we had included calculating that at the time with his circumstances, he actually fell below the official "poverty line"! My advice was to take all the help he could get from where ever it came, as his family had to be his priority. And if anyone ever gave him grief about being Maori, or getting that help, then I wanted to know so I could squash the racism flat!

by The Person | 11th Nov 21, 11:41am 1636584100

So for 12 years, we had inflation running at 15% a year or so, the rest of the population is seeing their salaries double, but you and your wifes wages were frozen? In that case weren't you out on the street begging for food?

by murray86 | 11th Nov 21, 11:46am 1636584380

My wife worked for the bank and she got some increases before she got pregnant, and I got a promotion and a move back to Ohakea where life was somewhat cheaper. But a lot in the military had it hard through those years.

by JustAnOpinion | 11th Nov 21, 1:53pm 1636591986

Thanks for your service Murray.

My mum n dad also bought a house in this period of 15-20% interest rates, both worked and mum literally made my clothes in the weekend. Things were very very hard but the community was much closer and there was a lot of support. I think the technology turd that is facebook has a lot to answer for in regards to the cheapening of real community and the mindmeld with sitcom USA.

by Palmtree08 | 11th Nov 21, 12:02pm 1636585346

Soared? LOL. Averages are always skewed by those doing really well. What was the unemployment level during that era? Personally, that particular time bracket were lost years for me, in provincial NZ, on a single low income and a mortgage on a $49000 house, which subsequently declined in value for a few years. I'm just glad I sold up my handful of Robert Jones and Brierley shares to help with the deposit.

by Nzdan | 11th Nov 21, 2:25pm 1636593920

So then the skewing of wage stats is the same for today as they were 30 years ago?

by Miguel | 11th Nov 21, 9:33am 1636576413

No the truth is if you were in the same position today, you'd probably be totally locked out of the market, renting for life. That is the truth.

Yes it will always be a struggle, simply because most people want to live in the "best" house available - so people will push the boat out. The truth is on entry level salaries people were able to buy good stand alone houses with a bit of land in their 20's. Now days, people on entry level salaries in their 20's have no chance. People in their 30's are having to settle for the types of properties people in previous generations could have afforded far earlier in their careers. All the while increasing portion of the population is locked out of the housing market completely

You are being disingenuous.

by murray86 | 11th Nov 21, 9:47am 1636577270

Too many assumptions. Apartments were not available then. Bit of land? The section is 557 sq m, with a 90 sq m house on it. On clay, on the side of a hill. Tiny by any measure, bottom of the market, and a very, very long way from the "best". Barely adequate, at best. We had no parental help at all. And by the way I was 30 when we bought the house.

But you are probably right that today by the equivalent, we'd be locked out and forced to rent. and that is why I largely agree with many young today. As to who is at fault - read my reply above.

by Miguel | 11th Nov 21, 10:45am 1636580706

So why make the comparison? If it was hard for you to buy a house back then, but you wouldn't be able to buy now, saying "its always been hard" is pointless. Buying a house will always feel hard, as people will always look to buy the best house they can afford. The real problem is the increasing portion of the population that is now locked out from owning (without parental help).

Everytime someone says "stop moaning, its always been hard" they are simply distracting from the real problem

by murray86 | 11th Nov 21, 11:42am 1636584170

There remains the inter-generational comparison that is still valid because it points to the regulatory failure of Governments, not any of those generations. As i identified in one of my earlier posts, the debate should be about fixes.

In other discussions, besides blocking foreign buyers, I have also suggested that rents should be regulated to be no more than 25 - 30% of the median take home wage. This would push a lot of investors/speculators out of the market, and literally save the government $billions. But what would also be needed now would be restrictions on land banking, holding houses empty, as well as quality standards. I also suggest that the regulations around the private banks creating credit need to be thoroughly tightened and restricted. Do all that and watch houses suddenly become affordable, child poverty significantly eased and local economies pick up as disposable income comes into play.

by blobbles | 11th Nov 21, 12:28pm 1636586884

Oh we know consecutive governments have failed. But the reason for their failure is they don't want to upset the boomer cohort of voters, who have by proxy given us a tax system skewed towards asset speculation and unaffordable housing. This is very well documented over the past 30 years or so. While you may not be one of the boomers who has advocated for such a system, most boomers have through their voting choices. And one can only assume it is because of self interest.

by murray86 | 11th Nov 21, 1:26pm 1636590411

While I understand your reasoning Blobbles, I wholeheartedly disagree. Since 1984 the post boomer voting cohort has become increasing larger, and I would suggest, since 2000 are the dominant voting block. But that has made absolutely no difference to what has been done about the problem which to all intents and purposes has been nothing. I suggest that we have all been sold a line, which might have sounded good but in fact was totally bogus. In effect it was the choice we were given. In short we trusted those who our elections decided would lead us, and that trust was somewhat misplaced. The reason being the dominant influence being where the money is. Cuba Gooding Jr's "Show me the money!" is so applicable here. Remember the photo the Chris Trotter appended to one of his articles that showed Mike Moore Advising David Lange, Richard Prebble and others of those they couldn't afford to get off side with as a Labour Government? "Those" were essentially the big money, banks and business's and the result was they quailed at truly representing ordinary NZ'rs. I suggest every government since has as well. That is our democracy.

And today they would entrench their ability to keep and deepen their power!

by blobbles | 11th Nov 21, 3:53pm 1636599195

Sorry, you are wrong. It is generally widely accepted in political analysis that boomers will be the biggest voting bloc until the 2029 elections and have been since the 1980's. Post 1984 voters only got the right to vote in 2002, so only have been in the political landscape since that time and have increasingly been disconnected from politics, because it increasingly has hurt their future and that of their children. So those young people have voted, by not showing up to polling booths, checking out of democracy that they increasingly see as rigged against them. The "youth quake" was supposed to happen a couple of elections ago, but in reality gen-x/y/millenials won't get close to out numbering boomers until late in the 2020's. Zoomers are only just able to vote as well. And of course those that do vote from these generations are heavily influenced by their parents, so we see the boomer vote echoing through the elections as well. The tribalism issue is also why it's nearly impossible for new parties to appear and gain votes - we simply don't have enough intelligent, thoughtful young voters. And why would we when no option has made any difference? The rise of the ACT party (a right wing party), shows many boomers leaning into the destructive policy directions set in the 1980's as well, rather than finding something new.

by Beanie | 13th Nov 21, 8:40pm 1636789226

by company of heroes | 11th Nov 21, 9:46am 1636577215

"But the point is that no matter what generation is trying to get into owning their first home, the experience is painful and requires considerable sacrifice."

Sorry I had to call this out as this just really hurts my ears. I think most boomers today don't understand the pain and sacrifice today younger generation are having are very different from theirs. I don't blame boomers themselves but to blame the narratives the society put out there and try to let the young generations to believe, such as "it's meant to be painful" "you are meant to carry a huge debt and work your butt off, otherwise you can kiss owning a home good bye". I am all for working hard, but it shouldn't be for such a basic need of having a roof over their heads. It should be for something better and greater. The younger generation, who got talked into climbing up the property ladder no matter what cost it is, are not only facing pains and making sacrifices but also will face higher chance of bankruptcy and losing everything.

by murray86 | 11th Nov 21, 9:56am 1636577769

" "it's meant to be painful" "you are meant to carry a huge debt and work your butt off, otherwise you can kiss owning a home good bye"" Your interpretation not mine. The point is that the current generation's pain is not unique.

But I totally agree with you that a home, more than just a roof over your head, should be considered a basic human right, what ever path you take to get one. I think rents are a huge rip off and shaft job, and I have owned rental properties. I believe rental v home ownership should be a freely made choice, which it is not for far too many people today.

I also agree with you that the risks are higher, although they also existed back then too ( I knew two people who lost their homes then, one because he was greedy, and the other because the '87 crash kicked his feet out from under him), but hose come from Governmental failure not generational.

This debate should not be about what the experience was like, but how it can be fixed.

by Nifty1 | 11th Nov 21, 9:01am 1636574515

It's unbelievable that boomers still have this way of thinking... talk about being disconnected from reality.

by Zachary Smith | 11th Nov 21, 9:39am 1636576783

It is impossible to comprehend the "lived experience" of others. Boomers represent ordinary people peak privilege. The most invested in generation of ordinary people in history as opposed to traditional elite classes who are always much fewer in number.

by JustAnOpinion | 11th Nov 21, 5:11pm 1636603878

If I can cut through the woke-babble for a moment, the Boomers (of which I am not one) created this country. The literally created almost everything you can see.

Where does this delusion come from regarding Boomers getting it easy etc? I find it weird.

by Miguel | 11th Nov 21, 9:26am 1636576017

Anytime I hear these stories on "how tough it was in my day" usually turn out to be false comparisons. Most people buying now are in their mid 30's' and are spending 5+ years saving for a deposit (while paying off student loans) and are struggling to afford their mortgage on mid-career salaries . Most of the stories of people who struggled to buy in the 80's were able to buy the property in their mid 20's on salary from entry level positions, after saving for 1-2 years to get the deposit.

Most of the time its apples to oranges and it isn't a relevant comparison.

by JJS | 11th Nov 21, 10:41am 1636580481

You don't need to go as far back as the 80's. I bought my first house 9 years ago. Had been fortunate to be able to put together a 20% deposit due to a combination of saving and buying and selling some old cars on the side. My parents urged me to buy a house (but didn't give any financial assistance) but I wasn't that fussed to be honest, thought I had all the time in the world etc. All came about as had to move out of my rental, and from doing the maths (at 8% interest) the mortgage payment was no more than what my partner and I would have paid to rent someone elses house. As they say, the rest is history.

It feels a lot harder just shy of 10 years later. I have friends who are professionals in their mid/late 30's who have just returned from working in the UK for the last ten years. Sadly they don't own property and are faced with looking at undesirable properties in undesirable places to just get on the ladder. They worry about safety for their toddler - for the same mortgage payment they could rent a house in a much better area. Also unless there is significant parental help, I can't see how it is possible to save the $250,000 required for the deposit, unless you are in the 1% and happened to luck into a job paying $200k a year - not common in your 20's.

The whole market makes absolutely no sense to me. I worry for people that have been so desperate to get into a first house over the last 12 months that they've saddled them self to noose around their neck for the next 30 years, which is about to get a lot tighter with raising interest rates.

by Nzdan | 11th Nov 21, 2:30pm 1636594242

They often bring up high interest rates as the comparison. I don't recall hearing any millenials complaining about the cost of servicing a mortgage, it's obtaining the deposit that's the real issue. A deposit at many multiples more than boomers had to obtain, with term deposit rates considerably less. Infact, many people today are likely having to save a deposit the equivalent of the house price to income ratio of the 80s, without the luxury of high interest rates.

by JustAnOpinion | 11th Nov 21, 5:22pm 1636604534

This is a good point, I agree the challenge has morphed, when I was young watching my parents visibly struggle with making the mortgage payments that were very significant. Todays nippers will still see their parents struggle but today they start struggling before the even but a house.

While I think those who think Boomers had it easier are simply lazy and could educate themselves it is true that it is very hard today as well. Like a lot of others on this site I had a lot of new costs that they never had, student loans (x2) etc but managed to save hard and buy a place. Not an average house, a 2 bed leaky apartment that I then had to almost completely re-purchase through the costs of the remediation process. But I made it. One thing I will say is that I did not have to work in the weekend to build my house with my mates and then work weekends to build theirs. I did not have to sit around the sewing machine and make my kids clothes. I did not get made redundant on a 17% mortgage.

If those on this site whining about it being hard could take their hand off it for long enough to pick up a phone to a boomer you might feel a lot better.

by Tom Joad | 11th Nov 21, 9:49am 1636577345

"Interest rates at the time were 15-18% (they peaked at 23% from memory)"

..and therein lies the rub.

You struggled to buy at high interest rates but buyers are struggling today at record low interest rates and paying $1m plus for very modest shacks!

The idea that bankers have your back if your a borrower has become embedded in the psyche. I fear that CBs have lost control of the monster they created and there's an awful lot of pain ahead.

by Nzdan | 11th Nov 21, 2:33pm 1636594404

Interest rates peaked at 23%, which suggests the term deposit rates were also double digits. So they couldn't save a bigger deposit therefore borrowing less? Kids today are saving a deposit the equivalent in income ratio terms of what a house cost back then. Why could those back in the double digit days just save and buy the house outright?

by Rosenstein | 11th Nov 21, 8:21am 1636572085

Not transitory eh.

Just like "safe and effective"

by frazz | 11th Nov 21, 8:23am 1636572186

Inflation is theft..pure and simple yet we are told it will fix the market?

by VTHO | 11th Nov 21, 8:29am 1636572569

To any employees out there with a pay rise less than inflation, or indeed no pay rise at all, I suggest reducing productivity at a rate that matches inflation. Your employer is effectively saying they value your work less than they did previously. It is only fair after all, you get what you pay for.

by murray86 | 11th Nov 21, 8:36am 1636572987

Yup, that's what the Government has said to all it's employees.

by mfd | 11th Nov 21, 9:56am 1636577781

Yep, these inflation readings are great for those being offered 2 year deals of 0% 1st year, 1% second year.

Expect more strikes.

by Whatwillhappen | 11th Nov 21, 11:08am 1636582084

One government agency has offered a 1.5-2% payrise to its union members, with a 1.5% increase next year. Only for the pleb bands, nothing for the higher skilled workers. Nothing the year after that. Possible 1-2% step increases within bands in those years, but only for those who are near the bottom of the band. Not a great endorsement of their workers.

The real effect of offers like that one is that skilled staff leave and get 20-40% pay rises from another Ministry because the market is tight. The ones who are less skilled go backward with less than cost of living increases.

by mfd | 11th Nov 21, 12:26pm 1636586794

My group are largely higher skilled, so are looking at 1% pay rise over two years. We will be taking action shortly and if the DHBs can't do any better we have transferrable skills to sectors with fast growing salaries. I'll be considering my options rather than settling for an effective 5-10% pay cut.

by Whatwillhappen | 11th Nov 21, 1:05pm 1636589121

Indeed. The perverse outcome of a pay freeze is those who are mobile get moving and the policy actually increases wages for those who move. It was the government's pay freeze that was the final straw. I moved, and even if there's 5% inflation for 5 years I'll still be better off than my previous job.

by JustAnOpinion | 11th Nov 21, 9:26am 1636576016

Sep CPI 4.9 % + Sep LCI 2.4% = wage decrease of 2.4%

< sad face >

by fender bender | 11th Nov 21, 10:01am 1636578082

Spoken like a true employee or sole trader. Most employers that sell labour and monitor productivity & efficiency (a term conveniently left out of this discussion too often, efficiency) would happily pay wages on a true productivity and efficiency standard, its transparent and real. In fact I am implementing it in my business where pay rates are tied directly to efficiency and productivity (it’s a scale, not too complicated). The analysis and formulations required to do this transparently show that a percentage of the workforce (in current snap shot) carry the other percentage who’s efficiency is way off the desired level that is required to provide a required gross profit level to the business to operate.

The other issue I have as an employer, trainer, business owner is that inflation is caused by the ineptness of the government and its policies, why should a private enterprise be responsible for carrying the burden of intrenched bureaucratic ineptness?

by powerdownkiwi | 11th Nov 21, 10:21am 1636579281

Because it isn't being caused by the ineptness of the Government.

Just as Clinton wasn't a good financial manager, or Bush Junior a bad one. They all arrive at a point in a fluctuation - and wear the laurels or the tomatoes accordingly.

But this time it's different. This time we are nudging up against the global limits. Expect competition for dwindling resources, including physical competition. And don't expect debt to be repaid - which begs the question: what is money now worth?

by linklater01 | 11th Nov 21, 3:32pm 1636597951

pdk,

Surely the answer is as always; it's worth what you can exchange it for, no more, no less. If your vision of the not too distant future comes to pass, that won't be very much, but that point, let's call it the Great Disruption, is further off than you think.

by VTHO | 11th Nov 21, 12:00pm 1636585227

The results of this would be very interesting! You speak of transparency.. do the employees get to see the results of the other employees and how they compare? That could make for some exciting work place conversations lol.

Fair pay for a fair days work is how it should be. I feel the problem is that employers in a general sense (not all of course) have been screwing staff for years, so when a business owner blames the government for inflation (rightly or wrongly), staff do not care. All they see is inflation and their wage not keeping up.

by fender bender | 11th Nov 21, 12:56pm 1636588602

VTHO, employees get to see where they are in the pack, figures no names. Your right staff dont care about who causes inflation all they see is their wage not keeping up as you say. So employers with an interest in contributing to changing things and avoiding employee discontentment educate their staff on why inflation is occurring. Its not rocket science, if the one thing that you spend most of your time and money paying off or paying to live in keeps on increasing in value illogically. Everything else is going to increase in a trickle down effect. Wages, food, services, entertainment.

Oil etc will go up and down and be out of our control. Houses we can change.

by HouseMouse | 11th Nov 21, 8:57am 1636574246

Question - to what extent are the real impacts of inflation on our quality of life being exaggerated?

And let's leave aside housing, which has been going gang busters for years, and isn't in the CPI.

Ok, groceries are certainly a bit higher. And electricity a bit. But not massively. And can adjust - eat smaller servings of meat etc. And be healthier.

Clothing a bit higher? Well, I for one buy most of my clothes in sales.

Petrol? Sure, but it has been close to $2.50 at several times over the past few years.

How about the deflationary effect of tech? I love books and music. I can buy a book online for less than half of its physical cost, and I have Spotify for $10 a month.

I can still get a good bottle of Aussie red for no more than $20.

A haircut might be $30 rather than $20, but I get a haircut once every 7-8 weeks, so on a weekly basis the difference is nothing.

by VTHO | 11th Nov 21, 9:11am 1636575093

Not exaggerated at all for low-middle income earners. In aggregate, all the above plus many more, with no additional income, has a very real impact.

Then you sprinkle in housing, which you choose to ignore for some reason, and it is a huge impact.

by HouseMouse | 11th Nov 21, 9:23am 1636575782

I didn't ignore housing as my focus is on the CPI basket I have long said that basket is flawed - but it's what counts for the RBNZ.

Yes the impact is obviously much greater for low income earners, but even then I think it's somewhat exaggerated.

For example, fuel has gone up a lot in the past 6 months- so when measured over the last 6 months inflation on fuel has been high. But what if you measured it over the past 5 years? We have been at or near current prices several times before.

In terms of people on low incomes, some things are cheaper than ever, in terms of things like clothes, household items etc.

by Ptolemy | 11th Nov 21, 9:13am 1636575213

Inflation hurts low income workers far more than mid to high income workers. If your household discretionary spending is say $800 a week before housing and inflation is 6% then the same goods suddenly cost $850. If your weekly buffer is only $50 (as many households are) then you can cope for a year. Sure you can swap out some items for cheaper but you can't avoid an increase in your mortgage or rent costs and you can't avoid an increase in petrol prices (unless you bike everywhere). It's likely the increased costs for those two items alone will be more than the buffer. If inflation is let to run rampant for a few years the people with low or no buffer have real hardship and then the people in the middle. In year 2 and 3 the costs rise by even more. As Frazz said, inflation is theft by stealth.

by Carlos67 | 11th Nov 21, 10:24am 1636579448

Take your blinkers off HouseMouse its sounds like your at the same position in your life as me. I'm 55 soon and life is sweet. I'm buying things now that inflation has little effect on my lifestyle. Technology has made all your electronics cheaper, cars are cheaper, hell my haircut is being done for me for free now by someone with clippers. Inflation has hit housing and the stupid CPI figure is BS and we all know it. Anyone already in a house in wearing blinkers. The real CPI number simply couldn't be published, its double digits.

by donny11 | 11th Nov 21, 10:49am 1636580961

I'm 35 upper middle class. 1 house I have paid off most of my mortgage. We are smart with money. I buy my fruit and vegetables from local markets not supermarket. Vaccuum pact food etc. In all honesty I don't really notice inflation except in housing.

Around 2020 we had decided we were going to upgrade our house. Needed a bigger one for a growing family. We were planning on borrowing 600-800k. The way house prices have soared we will now need to borrow 1.5 ( if i can). Too hard will just stay where we are.

by Zen20 | 11th Nov 21, 12:42pm 1636587775

"upper middle" - are you sure?

by linklater01 | 11th Nov 21, 2:42pm 1636594944

donny 11,

Fascinating. "upper middle class" seems such a very English phrase. There you might have pots of money, but without a public school accent, you would still not be upper middle class-noveau riche certainly. And i thought NZ didn't have that sort of class system.

by EarlyRiser | 11th Nov 21, 11:47am 1636584429

My house and contents insurance is up about 40% in the past 5 years. Car insurance up about 25%....and no, I have not made any claims at all.

Many *local* grown fresh fruit and vegetables up markedly. Gisborne oranges up 50% in 5 years. Local HB cherries up 20% in 4 years (and they'll go up more when the latest harvest is available in a few weeks, no doubt).

My rates bill (Napier) is up over 30% over the past 4 years.

I used to pay $26 for a haircut in 2017 and now the same place charges $35.

My favourite Indian / Turkish / pizzeria / Thai restaurant have all put prices up markedly in recent times.

Pet food up in price around 30% (and with two cats on prescription diets this isn't a trivial amount).

These are just a few things off the top of my head. We're fortunate in that we have a reasonable income - but a lot of people must have found these recent price increases causing them to tighten their belt, so to speak.

by Audaxes | 11th Nov 21, 9:10am 1636575036

The UST 10yr yield opens today at 1.55% and up a very sharp +12 bps since this time yesterday and rising.

Whoa - back up - the 10 year was 1.69% on 21st October 2021 and curves are around 20 bps flatter today.

Today's UST 30 year auction came in at median yield of 1.824% compared with a previous print of 2.049%.

by Roelof | 11th Nov 21, 11:17am 1636582651

Well... it kinda feels like both yields and gold want to go higher.. ( looking at the charts ).

Transitory or not transitory.. ....that is the question. ( Shakespeare )

by Audaxes | 11th Nov 21, 11:43am 1636584187

Money Correlations - nominal, Money Correlations - real

Daily Treasury Real Yield Curve Rates

by Roelof | 11th Nov 21, 12:08pm 1636585721

My view is that when yields and gold start trending up together, that will help confirm , for me, a paradigm shift in the mkts expectations, in regards to money printing / financial repression and the loss of value of money...

(Gold might not be the proxy , it once was. Collectables, art, crypto..etc... are all kinda leading the way.)

At that point Central banks are between a rock and a hard place..... Adrian Orr might wish for a "redo"..

ps. In case u are interested..Michael Every on the eurodollar mkt. Interesting read

( Biggest takeaway I got was that Eurodollar mkt does not have access to liquidity like a normal Banking system does( with central banks ).. Because of this it can have "Bank runs", which is what happened in the GFC. The FED has stepped up to provide lines of credit ( liquidity), to "friends".. , so post GFC the nature of the Eurodollar mkt has kinda changed ... maybe a little bit..?)

https://danielangelow.wordpress.com/2020/04/29/the-eurodollar-market-is…

by Audaxes | 11th Nov 21, 7:00pm 1636610441

Hang on - I worked at Chemical Bank, a eurodollar bank in London - with a parent bank in New York, with just one public branch in New York. Without any recourse to the Federal Reserve this same bank bought shares (securities) to takeover Chase Manhattan Bank and did the same to takeover JP Morgan, by just recording what it owed to the sellers of those shares.

Fed credit lines to foreign central banks were minuscule in amount compared to the $100's of trillions of dollars created out of thin air circulating in the eurodollar space.

It must be noted that any shortages of credit creation in this medium always shows up in rising USD indices.

Furthermore:

There are so many obvious dots waiting to be connected the fact they haven’t been almost has to be intentional. The St. Louis Fed, for example, in its First Quarter 2018 magazine, published a summary of the major theories on this disinflationary puzzle. The usual prospects you’ve already heard before, the authors cite technological factors, demographic shifts, globalization, and, oddly enough, central bank independence as the list of chief suspects. None of these account for why 2008 sticks out as the key inflection point and the authors draw no conclusions.

The last potential explanation included was something they called neo-Fisherism. Irving Fisher was among the first to seriously scrutinize interest rates as being related to money and economy. He deconstructed them into discrete pieces; a single rate contains a real interest rate plus inflation expectations (on top of which modern statisticians have added “term premiums”). The real rate is independent of anything but perceived conditions in the real economy – and is therefore the absolutely most crucial component (the flat curves of today demonstrating this with perfect clarity).

In this view, the answer is pretty simple – no need to appeal to a rotten labor force of drug addicts and Baby Boomers.

Thus, if the real rate is close to zero, it must be that, under this hypothesis, expected inflation is close to zero as well. The solution to low inflation in this context is to increase the nominal interest rate.

If the real rate is close to zero, pace Keynes, the economy must be awful. Therefore, the solution is to make the economy not awful – via inflationary policies. I know what you are thinking, the St. Louis Fed of all outfits bringing this up ten years after the crisis, then what the hell was QE? Link

by Roelof | 11th Nov 21, 2:08pm 1636592920

"Thus, if the real rate is close to zero, it must be that, under this hypothesis, expected inflation is close to zero as well. The solution to low inflation in this context is to increase the nominal interest rate. "

Check out this period in history. Real rates close to zero with inflation.. ( FED was controlling interest rates )

See second graph in this article

https://awealthofcommonsense.com/2020/07/what-if-we-get-inflation-but-i…

by Audaxes | 11th Nov 21, 3:00pm 1636596042

Given that prior depressionary backdrop, however, this wasn’t actually any problem, meaning the Federal Reserve found itself with practically nothing to do. The banking system, still seeking only the safest and most liquid profit opportunities, was only too eager to buy each and every bond, note, and certificate – at almost any price – Treasury had to sell.

Treasury just wouldn’t need the Fed’s help at any point. The bond market proved quite able (and less prone to the same emotional errors exhibited so frequently by central bankers) so as to distinguish between a huge CPI surge based on other factors from actual inflation which is always and everywhere about money (Friedman). - Link

Large US banks, currently, cannot get enough safe, liquid government securities on their balance sheets.

by chebbo | 11th Nov 21, 9:21am 1636575697

I reserve the right to be wrong, but I still see these CPI inflation figures as a bit of a red herring. There are major deflationary forces starting to come to a head. Take Evergrande, as just one example. Ignoring any complications from the resulting contagion, the Evergrande default alone will wipe out $300bn worth of money owed from the global economy. That's a lot of money and is hugely deflationary, and there will be plenty more defaults just like it still to come, as rates rise internationally and debt obligations fail to be met.

The negative effects of a deflationary spiral will be far worse than an inflationary one, even if the likelihood of it happening is lower. The risk associated with this event is therefore much higher, and anyone hedging against inflation needs to be careful they don't end up taking a bath.

by HouseMouse | 11th Nov 21, 9:24am 1636575876

Exactly! But we seem to be very much in the minority!

by Let me be Frank | 11th Nov 21, 10:03am 1636578203

BERLIN, Nov. 10, 2021 /PRNewswire/ --"

China Evergrande Group today again defaulted on interest payments to international investors. DMSA itself is invested in these bonds and has not received any interest payments until today’s end of the grace period. Now DMSA is preparing bankruptcy proceedings against Evergrande and calls on all bond investors to join it.

China Evergrande Group, the second largest real estate developer in China, defaulted on interest payments on two bonds back in September, with the 30-day grace period still ending in October. However, shortly before the end of the grace period, the public was misled by rumors about alleged interest payments. The international media also took the rumors for granted. Only the DMSA - Deutsche Marktscreening Agentur (German Market Screening Agency) already recognized the default at that time and proved in a study that the bankruptcy of Evergrande, the world’s most indebted corporation, could ultimately lead to a “Great Reset”, i.e. the final meltdown of the global financial system."

https://apnews.com/press-release/pr-newswire/business-china-evergrande-…

by The Person | 11th Nov 21, 1:16pm 1636589804

who do you believe? PR from some guys who want you to join the suit, or bloomberg who say the clearing house say they made payment

https://www.bloomberg.com/news/articles/2021-11-10/evergrande-said-to-p…

by wewillsee | 11th Nov 21, 10:24am 1636579444

This is purely just conjecture and food for thought, but what about a heterogenous inflationary/deflationary landscape. I think you could see a lot of the supply chain and labor based good and essential commodities see significant inflation, but over bloated assets and service sectors that have been over financialized deflate.

by Squishy | 11th Nov 21, 10:04am 1636578275

I'm shocked that "yeeting" a tsunami of money at markets might cause a hyperinflationary surge.

by Roelof | 11th Nov 21, 10:27am 1636579661

Bridgewater have an interesting view, suggesting that we have a "demand shock", which is less transitory than a supply shock ?

The result of Money Printing 3 ( Money printing + fiscal spending ), which is a version of MMT.

https://www.bridgewater.com/its-mostly-a-demand-shock-not-a-supply-shoc…

by company of heroes | 11th Nov 21, 10:32am 1636579927

For those people still think inflation is transitory and RBNZ won't raise rates quickly.

Deutsche bank chief US economist made some good points in this video that central banks could not do too much to deal supply side issues but can deal from demand side.

Inflation may cause Fed to 'act earlier than expected': Deutsche Bank chief U.S. economist - YouTube

But the question is whether consumer demand is really high or not. While assets prices are record high and interest rates are historically low, if you have couple of thousands free money in your pocket, what are you going to do? Buying assets? Saving it in banks to get interest? Or spend it?

by donny11 | 11th Nov 21, 10:53am 1636581191

I think November 23rd OCR will be an interesting bellwether of future monetary direction by RBNZ.

by Carlos67 | 11th Nov 21, 12:48pm 1636588115

I'm going for a 0.5% increase on the 23rd. Should have already happened but the RBNZ have no balls. If they leave the next rise to February then all hells going to break loose over summer in the housing market with everyone getting another $100K stuffed into their back pockets. Lockdown is ending, summer is almost here and there is no point waiting anymore for that Black Swan event to save the day.

by HouseMouse | 11th Nov 21, 1:36pm 1636590999

I agree.

But I only think it will be 50 BPs because the next OCR decision isn't till February.

Otherwise I think they would have gone 25.

by JustAnOpinion | 11th Nov 21, 5:32pm 1636605129

I agree as well for what that is worth.

The only outside risk is Orr goes off on another tangent and bangs out .75 or worse yet 1.0 you would have a congo line a mile long on queen st if the bankers heard that. "to infinity and beyond..."

by Roy1 | 11th Nov 21, 10:49am 1636580984

https://www.washingtonpost.com/business/2021/11/10/cpi-inflation-octobe…

https://www.washingtonpost.com/us-policy/2021/11/10/inflation-white-hou…

Biggest lie of the decade is "Inflation is temporary" started by fed and picked up by reserve bank and government in NZ a as it suited to cover up their vested biased narrative. ( When things get wrong as they will, NO harm as even US will be in the same boat so will not be criticised)

Inflation has grown so big that if left to reserve bank and gocrnment, they will not address ( not that they cant but because that they have created a monster beyond their control) and now like nature, economy will take control and could lead to disaster as never seen before. How much money will they print to cover up and each time time has to bigger than before.

Mr Orr's of the world let the economy takes its own course and if it corrects and have short term pain is better than kicking the tin down the road and delaying as bigger the delay bigger the mess, it will create.

November meeting by Rbnz will be crucial as it has opportunity to lead the way......life saving machine cannot be a permanent feature. Interest rates will go up as it is with what is happening around the world, so raise as many economist expect to raise OCI by 0.5% and put NZ in front foot but for that have to ignore lobbyist and so called experts who works for ........

by linklater01 | 11th Nov 21, 2:33pm 1636594431

Who would have thought it? Chinese money laundering in the Australian property market. Fortunately, that sort of thing couldn't happen here. Could it? Surely not.

by dumbthoughts | 11th Nov 21, 2:49pm 1636595389

It's transitory in the way the Roman Empire was.