As the Reserve Bank of New Zealand (RBNZ) prepares to make its next monetary policy decision next week, retail sales data suggests previous rate hikes are working.
Retail sales volumes have been falling for eight consecutive quarters and dropped another 1.9% in the last quarter of 2024.
Volumes are now 4% lower than a year ago and 8% below their peak two years ago.
Doug Steel, an economist at BNZ, said the data showed New Zealand’s jets have not only been cooled but are now in reverse.
“Retail sales is not all of private consumption but does equate to a bit more than half of it. And that is a big segment that has been going continuously backwards for two years,” he wrote.
Real sales per capita have dropped 6.7% from one year ago as cash-strapped households have cut discretionary spending to pay their mortgages or, at least theoretically, increase savings.
Over two years sales volumes per person have dropped 11.1% and are now at the lowest level since March 2017.
“If the RBNZ was looking for signs that demand is weakening, it seldom gets much clearer than this,” Steel wrote in a note on Friday.
Most economists expect the central bank to hold the Official Cash Rate at 5.50% on Wednesday, but ANZ’s economics team believes it could choose to start hikes again.
Economic activity data for the third quarter of 2023 was weaker than expected but the Reserve Bank's chief economist downplayed the importance of the data.
Steel said the weak sales volumes suggested the weaker-than-expected result could be repeated in the fourth quarter data when it comes out in late March.
It also suggests that monetary policy settings are working. Consumers are cutting spending, which is limiting retailers’ pricing power.
“It all fits with our view that interest rates do not need to be lifted any further, even though one cannot rule it out given the recent rhetoric from the central bank”.
Or, perhaps not
But the weak sales data wasn’t enough to discourage ANZ from their hawkish forecast of two more OCR hikes in the next two meetings.
Miles Workman, an economist at the bank, said retail sales volumes had fallen more than expected but there was plenty more data to factor into gross domestic product forecasts.
“It’s hard to foresee the outlook for retailers turning optimistic until the RBNZ has tamed inflation and is able to ease monetary conditions,” he wrote.
“To get to that point, we think the OCR will need to go a touch higher from here”.
International central bankers are also striking a cautious tone when discussing the outlook for interest rates.
While hikes are unlikely in the United States, policymakers are reluctant to start loosening monetary policy until it assembles stronger evidence that it has put inflation to bed.
Similarly, the European Central Bank has warned cutting rates prematurely could be more damaging than holding them high for a little too long.
The annual inflation rate in both these jurisdictions was roughly 3% in January, as measured by their monthly consumer price index data.
New Zealand’s headline inflation rate was 4.7% in the December quarter and isn’t expected to drop below 3% for another six months.
46 Comments
Introduce new competition, it works in the fuel retail market.
For one, I think we need to break the councils' monopoly, or throw out the elected bunnies and bring in directors with KPIs for effective results. It should be illegal for rate increases above inflation, aim for doing more with less. Councils can't just keep socking old people who have limited incomes.
It's a bit of a vicious circle.
- ratepayers don't expect to pay any more rates, at any point
- councils under invest in infrastructure and it's maintenance
- the final bill for infrastructure and maintenance is larger
- ratepayers expect infrastructure problems to be paid by magical sky daddy
The pet projects are things like fancy toilets and above ground facilities. So usually the sort of things ratepayers can visually see, to make them feel the council is doing something.
They're a wasteful distraction from the serious capital investment councils need to be making below ground, but I don't think it's a case of either/or (i.e the fancy baubles cost less than what the council actually needs to be spending).
The numbers that I have seen coming out blow my mind for the simplest of traffic calming. Nobody asked for any of the shit that is being installed, including kms of roadside barrier in my district that serves no purpose.
Road to zero is responsible, in the meantime councils waste millions of gallons of water thats been paid for to collect and treat.
Look at the sneaky Hamilton council proposing over 25 percent increase then peg that back to under 19 percent and the ratepayers are relieved its not so high. Employing psycho-manipulation techniques
Lets do the same with the council itself and give them more heat to operate to a strict budget. Replace them with a 3 or 4 person board that has an agenda and not pandering to certain voters.
We can't go on with their ridiculous monopolistic behaviour
Road to Zero is bollocks. Our suicide rates are crawling uphill, you expect some people to die hurling down the road at 100ks an hour, we shouldn't be losing anyone at their own hands.
I'm still trying to pinpoint when our society jumped the shark. Probably earlier than I'm thinking.
Have you managed to establish a link between the number of signs and the number of accidents?
Most of our serious accidents are caused by males driving like shit. I don't think the ways we try to improve road safety really address the problem - signs are great optics though.
Most, but not all. And most of those can be turned into a much less serious accident via hard medians. That also means they don’t crash into an “innocent” coming the other way. Most developed countries have a significantly lower road toll than us, is it because their roads are safer or because they have less idiots? Probably a bit of both.
They have a lower percentage of the population driving, purpose built roads, and better public transport options.
I'm not sure our entire GDP could be thrown at balancing it out and have it make much of a dent.
On the flipside, life's never been safer and we're trying to make it even more safe, with diminishing returns, yet people are trapped by more fear than ever.
It doesn’t cost that much to put wire medians on the main highways. It doesn’t cost much to decrease speed limits. Both of those are conclusively proven to reduce accidents.
It basically comes down to how much that death toll is tolerated, and vision zero doesn’t tolerate deaths unlike the old she’ll be right policy.
As there's never really been an example of a technocracy, I can choose whatever it may look like to me. And my guess is that should one ever form, then big money will be well and truly embedded into it.
You can likewise choose to define your technocracy anyway you like, but you can't call your version 'traditional' when none has ever really existed.
Tougher times for craft beers, artisan cheeses, premium cottage industry foods, top-of-the-line ski gear as the middle class feels less inclined to trade up from a more basic lifestyle. This filters through to the producers of the products and retailers who are more concentrated in the 'nice to haves.'
The alcohol-free bottle shop Curious AF is a mystery to me. If this kind of business is not a by-product of the Ponzi economy, I don't know what is.
Raise taxes temporarily. (Just the threat of doing this will get price-setters thinking twice!)
Politically unfashionable with neo-liberalism being the only economic doctrine that the great unwashed understand.
But it works. And creates far less damage while investment in additional plant and machinery (productivity) can continue at pace.
Lol it's rtrded that most of the populous think all inflations are created equal, solely demand driven so they themselves are to blame and the only way to fix it is for them to suffer... and RBNZ is some sort of omnipotent entity that must be followed and worshipped... doesn't realise the guy running it is fleecing NZers getting paid over $800k, completely shielded and pays absolutely no price for being wrong...
In retail , you have fixed costs, that have to be covered by your margin .
Reduced sales mean you need a higher margin to cover your fixed costs . But cashflow is crucial , hence discounting to try an increase sales. might work in the short term , but in the longterm, that margin has to be regained.
Retail is losing market share to online and overseas sales. They can't compete with these on price. so i wouldnt expect to see massive price drops .
Sure, consumption spending has contracted.
But what's happened to the all important investments in plant and machinery so that capacity increases so that the next bout of inflation is lessened because there is more capacity to meet demand? What's happened to that?
Let me put this in simple terms as posters here only seem interested in houses. The OCR rises, building slows and/or stops, no further housing capacity is added. See the problem?
Before the RBNZ and others start crowing that the OCR has beaten inflation and what a great job they've done - it is critical that the full costs of using such a blunt weapon are fully accounted for. And at present, no one is being honest about the costs! Years of current and future productivity are being lost!
The oil-tanker has ground to stop ... But it is no closer to its destination and millions of $$ are sitting idle on the high seas. To get the oil-tanker back up to speed will cost a consider amount of extra effort.
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