Inflation increased in the June quarter off the back of higher rents and petrol prices in line with Reserve Bank (RBNZ) and market expectations.
The Consumer Price Index (CPI) rose to 0.6% from 0.1% in the March quarter. Year-on-year, it increased to 1.7% from 1.5%.
This undershot the 2% mid-point of the RBNZ’s inflation target, supporting its intention to cut the Official Cash Rate (OCR) again to stimulate the economy.
The question remains whether an August cut to 1.25%, as widely anticipated by bank economists, will create enough stimulus, or whether a further cut in November (as picked by ANZ and ASB economists) will be necessary.
Market reaction was muted, with bank economists saying they don't expect the CPI data to move the RBNZ's dial.
The details
Jumping 5.8% in the June quarter, higher petrol prices made the largest individual contribution to inflation.
They contributed 0.25%-points to the 0.6% quarterly increase. Petrol prices are volatile. They were down in the March quarter, and have in recent weeks been lower too.
'Housing and household utilities’ was the group that made the largest contribution to inflation in the June quarter.
This category contributed 0.16%-points to the quarterly figure largely off the back of rents increasing 1.0%.
Rents have not risen this much in a quarter since March 2008.
Wellington was the region that led the charge, with rents up 1.4% in the quarter. While rents only rose 0.6% in Auckland, they were up 1.4% in the rest of the North Island.
It's worth noting Statistics New Zealand used a new method to gather rent data in the June quarter, which may have resulted in slightly higher prices.
The rising rents, petrol, and food prices that drove inflation were partly offset by a seasonal fall in domestic airfares, and a surprisingly large fall in the price of used cars.
Stripping out housing and household utilities from the data, annual CPI was lower than the 1.7% headline figure at 1.2%.
Yet stripping out all extreme price movements, underlying annual inflation was stronger at around 2%.
Non-tradable inflation was soft, up 0.3% in the quarter, while tradable inflation was up 0.9%.
As good as it gets?
Kiwibank economists believed the inflation pick-up seen in the June quarter would be temporary.
They expected the annual figure to fall to 1.3% in the September quarter, noting petrol prices have stabilised and forward-looking indicators of economic growth (like firms’ outlook of the own activity) are likely to cool price increases.
ANZ economists made a similar point, saying the June quarter reading was "as good as it will get for domestic inflation for some time".
“The economic expansion has slowed, the global environment has become a headwind, and peak capacity pressure is behind us," they said.
"Underlying inflationary pressures appear to have stalled below 2% and are set to move lower over the next year as spare capacity feeds into pricing."
ANZ economists stuck to their view the RBNZ would need to cut the OCR in August and then again in November, as they maintained the weak economic growth outlook would have a greater influence over it than stronger June quarter inflation.
ASB economists took a similar position.
"Low readings for core consumer price inflation suggest there is a structural (long-lasting) element to the inflation process, which, combined with slowing global growth is unnerving global central banks that are either cutting policy interest rates or seriously contemplating cuts," they said.
Commenting specifically on the housing component of the data, they said: "The housing group remained an inflationary beacon, but annual inflation fell below 3.0% for the first time in 12 quarters. This was despite a sizeable 1% increase in dwelling rents in the June quarter (2.5% yoy)...
"More moderate increases were evident for construction costs (up 0.7% qoq. 3.5% yoy)."
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74 Comments
This will be seen as a very positive sign by property investors......
When combined with continuing falls in interest rates and positive net migration, there's a growing impetus for a resurgence in activity by investors - especially with the ogre of CGT put to bed.......
A significant lift in house prices may result before year's end.
TTP
Indeed - This undershot the 2% mid-point of the RBNZ’s inflation target, supporting its intention to cut the Official Cash Rate (OCR) again to stimulate the economy.
The IIF pointed out the obvious, namely that lower borrowing costs thanks to central banks’ monetary easing had encouraged countries to take on new debt. Amusingly, by doing so, this makes rising rates even more impossible as the world's can barely support 100% debt of GDP, let alone 3x that.
Sure enough, as Sonja Gibbs the IIF’s managing director for global policy initiatives, said "It’s almost Pavlovian. Rates go down and borrowing goes up. Once they are built up, debts are hard to pay down without diverting funds from other goals, whether that’s productive investment by companies or government spending.”
And that, in a nutshell, is why the world is doomed to a central-bank created boom-bust cycle, as once there is just too much debt, there will either by hyperinflation or a wave of global sovereign and corporate defaults. Link
Dissolution of the Monasteries II: seize the assets of the major churches, convert what can be converted into almshouses for the poor, and use monetary assets to build more social housing. Having just finished reading Gillian Tindalls 'Tunnel through Time', I'm not at all sure that this would be a totally Silly Suggestion....but YMMV....
Hi CourtJester,
Tenants of residential properties should be entitled to the "absolute right of purchase" of the dwelling - at 50 percent of its current rateable value.
Government mortgages should be made "freely available" to those tenants who exercise their right of purchase.
TTP
Well, and not Entirely in jest, there was the old 'Family Benefit Capitalisation' scheme back when Dinosaurs stalked Gaia. Convert all future benefits to a lump sum then stop 'em, and that provided the wherewithal to become Yer Average Mortgage Slave. And force the now benefit-less (is that a Word?) into Productive Occupation.
Nah, too many Human Rights extinguished....
I take from your smart a## answer that you take the question of safe & healthy housing provision to be absurd? I presume you say buyer beware on any product in the market place... car seats that don't protect babies, medicine that kills, you know that sort of thing?
I thought the question was valid.
There are many laws that provide businesses with minimum requirements for their products, why should housing be different.
Seems a lot of fuss over a 1% quarterly increase (an unknown portion of that attributable to methodology change).. it isn't going to impact yields too much. Of course, it will impact disposable income. But of course landlords will lower their rent when the OCR drops..... #yeahright
To be fair, the coalition government has tried to kill off property investors, and it is clearly showing that it is backfiring on them.
Even this morning it has been announced that this government is being looked into with their so-called Kiwiflop underwriting houses incorrectly.
The thing is with the year of delivering by this government, they actually are delivering, but it is delivering failure on everything!
Migration lowered dramatically. No
Pike River, No
KiwiBuild, KiwiFlop
Reduce child poverty, worse than ever!
Reality is that this lot are so far out of their depth it isn’t funny, and will get worse as they flounder on everything.
Exactly. People on this site can hate landlords as much as they like but if you remove landlords by making things tough for them the simple outcome is higher rents. I stand by my earlier prediction that, in time, the government will be forced to become landlord as a result of their anti-landlord rules such as ring-fencing losses etc
I already gave you two reasons pragmist. Anyways it seems you are hypocritical, sucking households dry through your power company shares."Rising power prices pushing Kiwi households into power poverty | Stuff.co.nz" https://www.stuff.co.nz/business/106988949/rising-power-prices-pushing-…
Your comprehension (and memory) is rubbish. I said STATE houses, not kiwibuild, which if you had half a braincell you would know I've said is a rubbish idea for quite a while, pretty much since it became apparent how it was going (to fail to) work.
Meanwhile, STATE houses are going up pretty quick round me, I drive past the corner of Dominion rd and Youth st quite often, what was an empty section ~9 months ago now has"Two 2-bedroom duplex style homes, eight 2-bedroom units and six 3-bedroom units" looking nearly complete. And if you go down Youth st to Freeland place you can see things actually happening on a large scale.
That is the sort of thing that I'm talking about. Not acting as a middleman between buyers and developers and screwing the whole thing up.
no they cant - and never have been able to -- note Housing NZ properties do not have to comply with the new insulation rules for another year -- as they could not do it! The HNZ stock is poorly maintained - not properly insulated and repairs take forever to happen - and thats a 30 year problem - by both parties.
Yeah, you need to open your eyes. They are busy demolishing and redeveloping a ton of 1/4 acre state housing sections round my way, and the new state houses look just fine. Yes the old state houses should have been demolished years ago, but they are now catching up.
To be fair, the coalition government has tried to kill off property investors, and it is clearly showing that it is backfiring on them.
So are you suggesting the march to neo-feudalism will continue unabated and the govt has to get out of the way? Who's the spiritual leader of this movement? Ashley Church?
I think it's something like 60% of NZ h'holds have less than a few months of income saved. Good luck to the Fagans of the world when the proverbial really hits the fan. You'll probably be going cap in hand to the govt to ask for the rent on your tenants' behalf.
Yes inflation of property prices coming next. Stupid politicians: start pulling your fingers out of your ears, start doing something proactive. Help out the poor and help out all renters, fix this real "rental crisis" before too late. Instead we get dribble constantly about plastic bags and mining and perceived environmental crises that kids feel they should wag school for. Not saying there isnt a problem there too.
"The rising rents, petrol, and food prices that drove inflation were partly offset by a seasonal fall in domestic airfares, and a surprisingly large fall in the price of used cars".
So the stuff that matters is going up, so lets lower interest rates to push em up more!
With brilliance like this the economy will soon be strangled.
The reality is that in the major developed economies and regions of the world (U.S., Japan, and Europe), deflation is in full swing for many consumer goods and services (necessary for survival). Most of the inflation is occuring in asset prices such as house prices, stocks, and bonds. That's where the real inflation is. RBNZ is part of the program in the move to ZIRP.
Okay, so here are some stats from landlords.co.nz. Rental price increases for 3br houses, all of NZ:
July 2014 - July 2015: $380 to $400, an increase of 5.2%.
July 2015 - July 2016: $400 to $420, 5%.
July 2016 - July 2017: $420 to $450, 7.1%.
This raises a couple of questions:
1) Why are their stats so different compared to Stats NZ?
2) To all those blaming the Labour coalition, how do you explain the exorbitant rental increases during National?
3) To TTP & Co.: If the rental yields increased faster during those years, then why would this year's smaller increase boost the house prices more?
In fairness, they would likely have to. The accommodation supplement (last I read) was being handed out to the owners of 300,000 rental properties. Seems like quite the distortionary subsidy that is unneeded and only serving to raise the rental floor (as National's own research suggested...before they also decided to do it again, strangely).
The accommodation supplement is NOT paid to owners of rental properties RickStrauss. We have tenants who because they had not been in the country long enough and did not have PR they did not receive AS Accom Supplement. They still lived comfortably. After a few years they got PR and then got the AS subsidy, but they did not offer the money to me, like you say would happen. They still lived comfortably and stayed living in the same house (my rental), pocketing the government money. Now two years later they drive a Brand New SUV, good on them.
Oh, I'm well aware that the Accommodation Supplement goes through renters' bank accounts on the way the landlord. But as National noted, it's still a distortionary subsidy, and yes there are 300,000 receiving it, raising the rent floor for the wider market and be benefitting more landlords.
It's an absurd subsidy, but both major parties perpetuate it.
Maybe, the quality of the pumped petrol was gauged to have improved, thus hedonic quality adjustments lowered the real cost increase?
Lowering interest rates makes houses more expensive, and also stimulates inflation making everything else more expensive. Are GDP calculations now just really resting on increasing the price of everything and reducing the purchasing power of every dollar. I mean, why not throw aside all pretence and go full Zimbabwe? It's kind of what we're already doing, but in smaller magnitude. People aren't too angry because most of us can still afford to buy bread. But this is certainly not a game of wealth creation.
I am declaring a Renting Emergency across NZ ... this is crazy , down with this sort of thing , end it now ...
You heard it here first , folks : a state of Renting Emergency ... call the armed defenders squad ... phone up the arms services .. consult with the United Nations ..
This comes as no surprise to property investors and was well anticipated. Investors will tolerate a moderate yield when capital gain is positive. As soon as capital gain flattens rents increase to increase yield and provide an acceptable return. When rents increase people pile back into home ownership pushing up capital gain, then rents flatten again. That is a long established ongoing cycle that long term investors understand.
Before anyone asks where do FHBs get their deposit from, as RP would say, from all the money they have been able to save while rents were low.
What a load of nonsense. Rents and house prices are constrained by income and income growth, particuarly in the absence of loose lending by the banks. Furtheromore, household savings growth is flat to negative.
J.C - "Rents and house prices are constrained by income and income growth". So house prices and rent increases have been constrained? Geez I would hate to see how things would look if they were unconstrained?
There has been significant increases in many peoples incomes, Working For Families allowance, significant wage increases through recent pay negotiations. Well deserved to in my opinion.
However this is all feeding into the equation, people will only pay higher rents for as short a time as possible before finding a way to buy. 25 years of residential property investment has taught me this cycle. I know there are many variables but when it all comes out in the wash this is what happens.
As for household savings rates, RP has stated that staying out of the property market, and benefiting from cheap rents due to investors receiving such low yields on their investments, has allowed FHB's to save large deposits via term deposits?
There has been significant increases in many peoples incomes, Working For Families allowance, significant wage increases through recent pay negotiations. Well deserved to in my opinion.
Why not support what you say with data? Let's look at the broad median of weekly earnings. Up approx 27% over the past 10 years and 15% over the past 6 years. Income growth is barely tracking inflation. If rents were to rise 100% over a time period and incomes increased only 60%, this would be devastating for the consumer economy. And given that so much of economic activity is dictated by consumer activity, there is limited cpaacity beyond what h'hold budgets can afford.
J.C - "Why not support what you say with data?
Mmmm.... a statistician v real life experience.....no more questions your honour. Seriously though the RECENT increases i referred to have been well publicised.
"If rents were to rise 100% over a time period and incomes increased only 60%" Why not support what you say with real life?!
I can understand the point you are trying to make but to date that is not the way things have materialized, as my lovely old Nana use to say 'the proof is in the pudding'
OK, I'll trust you. Nevertheless, the data suggests that income growth is benign. Hearsay to suggest that this isn't so should be taken with a grain of salt. So if you factor that into a representative "renting" household budget, you can make the logical step that more income spent on housing costs means less money spent into the consumer economy. The less money spent into the consumer economy, the greater the negative impact on the economy as a whole.
Makes sence. Without a global wobble of some sort this cycle will repeat indeed. Govt has to decide its either inflation city or a property reset with associated chaos. Looking more like a inflation party.
Interestingly this is the worst outcome for retirees living on bank savings. They get to watch as their savings become increasingly worthless. Will NZF fiddle while the retired burn?
A question that springs to mind, now that Statistics NZ is using accurate rental data, in terms of both flow and stock and no longer reliant on surveys to gather same , is for how many years has rent inflation been understated in various publications including the quarterly CPI, which will not be revised for any difference in the reporting method.
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