By Alex Tarrant
Annual inflation is at its lowest point since 1999, dropping below the Reserve Bank’s 1-3% target band in the year to September.
That has financial markets pricing in a 140% chance of a quarter-point cut in the Official Cash Rate over the coming year, indicating they expect 35 basis points worth of cuts to the baseline rate.
But New Zealand economists say that despite these heightened expectations, the central bank will not cut interest rates in response to the lower-than-expected inflation reading. Figures for the December quarter should show inflation moving back towards the middle of that band.
Higher prices for cigarettes and tobacco, rents, electricity, petrol, newly built houses, and local authority rates, were partly offset by lower prices for telecommunication services and audio-visual equipment over the year.
Figures released by Statistics New Zealand on Tuesday showed general inflation, as measured by the Consumers Price Index (CPI), rose 0.8% in the year to the September 2012 quarter. This was the smallest annual movement since a 0.5% increase in the year to the December 1999 quarter, Stats NZ said.
Economists polled by Reuters had given a median expectation for annual CPI inflation of 1.1%, while a Bloomberg poll gave an expectation for 1.0%. The Reserve Bank had expected a 1% rise in the CPI over the year to September.
In the September quarter alone, the CPI rose 0.3% from June, Stats NZ said. That was about half of expectations for a 0.5-0.6% rise. The Reserve Bank had expected a 0.5% rise over the quarter.
The rise was led by housing costs, including a 17% hike in insurance costs, and a seasonal rise in vegetable prices, including a 57% hike in tomato prices.
These were partly offset by lower prices for second-hand cars, domestic air fares, petrol, telecommunication services, and milk.
OCR cut, or lower for longer?
The lower-than-expected reading will fuel expectations the Reserve Bank could cut the Official Cash Rate from its record low 2.5%, or at least could lengthen out expectations for how long the rate will be left on hold.
The majority of economists at New Zealand banks and economic forecasting agencies are still picking the next move for the OCR to be a hike, either in late 2013 or early 2014. They point to price pressures coming from the Canterbury rebuild and housing market activity as reasons for the Reserve Bank not to cut the OCR.
Markets, on the other hand, were yesterday picking about a 90% chance the OCR would be cut sometime in the next year.
The Reserve Bank is mandated to keep CPI inflation between a 1%-3% target band on average over the medium term. The Official Cash Rate is its primary tool for achieving this – it will raise the OCR if it expects future price pressures will push the CPI above 3%, and will cut the OCR if it expects price pressures won’t be sufficient to keep the CPI above 1%.
The OCR is most closely correlated with floating, or variable, mortgage rates. A cut or hike in the OCR should lead to a similar movement in floating rates.
'Risk rather than likelihood'
Following the figures, Westpac economists said the reading did stoke markets' interest in the possibility of OCR cuts.
"The 2-year swap rate fell 5bps, and the exchange rate fell about 20 pips. We view an OCR reduction as a risk scenario rather than a likelihood. The Reserve Bank's target is framed in terms of its inflation forecast, which will still be lingering close to 2% on average after today's CPI data," Westpac economists said.
ASB economists said they had changed their pick for the next move for the OCR - a hike - from June to September 2013. ASB had been an outlier with its June 2013 pick, and still holds the earliest expectation for a hike.
"The slow pace of Eurozone crisis resolution, coupled with dim Eurozone growth prospects, and likelihood of further RBNZ caution over persistent NZD strength all argue for a much later start than June. But we remain wary about the housing market in an environment where mortgage rates are likely to remain very low well into 2013 and risk further boosting demand in a supply-constrained market (notably in Auckland)," ASB economists said.
"We expect that ongoing strength in the housing market, coupled with gradually rising domestic inflation pressures (some of which were evident in today’s release), will push the RBNZ to start gradually tightening in the closing stages of next year," they said.
Infometrics economist Benjamin Patterson said the forecasting agency was sticking with its pick for the next move in the OCR to be a hike at the end of 2013.
"Instead [of cutting,] the Bank will sit tight, knowing that inflationary pressure is contained and they have room to move should financial conditions abroad deteriorate markedly. We expect inflation to rise back towards 2%pa during 2013, although we are cautious about how quickly cost pressures associated with the Christchurch rebuild will show up in the CPI," Patterson said.
JP Morgan Australia analyst Ben Jarman said the annual figure was dragged down by a low reading in the December 2011 quarter. That would not influence the December figures, which should show annual inflation of about 1.5%, he said.
"There has [also] been no loss of momentum in non-tradables inflation, and the path of the GDP and consumer spending data have been playing to our script of above-trend demand side activity. These facts, of course, also explain why Governor Bollard did not see fit to cut rates over the last eighteen months," Jarman said.
"At least initially, we feel Governor Wheeler will be biased to tracing the path drawn by his predecessor, which argues for keeping rates on hold until the economy has garnered sufficient momentum in 2013," he said.
ANZ economists said while the general picture remained benign, compositional (firming construction costs) and regional aspects (Canterbury) were testament to inherent tensions within the inflation portrait.
"With much of the undershooting in inflation over the past year coming from tradable inflation, and the NZD likely to remain elevated given structural challenges for the USD, we are closely watching transmission channels into non-tradable pockets of the economy. Key here are inflation expectations and the labour market. If both show weakness the case for a rate cut will grow," ANZ economists said.
"For now we remain comfortable articulating a “lower for longer” interest rate theme, with our core view centred around the OCR not lifting until 2014," they said.
Housing costs rise
In the year to September the main individual upward contributions to CPI inflation came from higher prices for cigarettes and tobacco (up 13%), rentals for housing (up 2.4%), electricity (up 4.4%), petrol (up 2.6%), purchase of newly built houses (up 3.0%), and local authority rates (up 4.1%), Stats NZ said.
Read the full Stats NZ release here.
The main individual downward contributions came from lower prices for telecommunication services (down 7.5%) and audio-visual equipment (down 18%).
Tradables vs non-tradables
In the year to the September 2012 quarter, the tradable component of the CPI decreased 1.2%, Stats NZ said. Tradable goods and services are those imported, or which face competition from foreign goods and services, either in foreign or domestic markets.
Movements in the tradables component demonstrate how international price movements and exchange rates are affecting consumer prices.
That fall reflected lower prices for dairy products, audio-visual equipment, and meat and poultry. It was the largest annual decrease in tradable inflation since a 2.3% fall in the year to the March 2004 quarter, Stats NZ said.
Meanwhile, prices for non-tradables rose 2.3% over the year, reflecting price rises for cigarettes and tobacco, rentals for housing, and electricity.
Economist reactions
Westpac
The Consumer Price Index (CPI) rose 0.3% in the September quarter, taking annual inflation down to a 13-year low of 0.8%. This was even weaker than our below-market forecast, and follows a string of weak inflation outturns.
The detail of this quarter's report was not quite as soft as the headline. The downside surprise was mainly due to two quirks that are unlikely to be repeated - used car prices fell 2.8%, and domestic airfares fell 7.8%. Apart from these two price declines, this impact of the high NZD on tradables inflation was not as pervasive as we were expecting - for example, household contents and services prices rose 0.4%. Meanwhile, housing-related inflation is starting to accelerate. The cost of building a new house is up 3.0% nationwide over the past year, and rose 1.0% this quarter. In Canterbury, the increase in building costs was 3.4% for the quarter, for a 9.6% increase in building costs over the past year. Our concern is that the Canterbury rebuild will boost housing-related inflation, eventually forcing the Reserve Bank to increase the OCR. This story still looks very much on track.
New Zealand's current low inflation rate is mainly due to low global inflation combined with the high New Zealand dollar. Together, these forces have caused a 1.2% fall in tradables inflation over the past year - the largest annual decrease in tradables inflation since 2004. Low headline inflation has allowed the Reserve Bank to delay its previously-planned OCR hikes.
Inflation once again printing below the RBNZ's forecast stoked markets' interest in the possibility of OCR cuts. The 2-year swap rate fell 5bps, and the exchange rate fell about 20 pips. We view an OCR reduction as a risk scenario rather than a likelihood. The Reserve Bank's target is framed in terms of its inflation forecast, which will still be lingering close to 2% on average after today's CPI data.
ASB
Underpinning the 0.3% increase in Q3 CPI were:
· a seasonal lift in food prices (as expected),
· the increase in annual council rates (although less than we assumed),
· an acceleration in construction costs (as expected),
· an increase in housing insurance premiums (as expected).
Offsetting these prices increases were declines in communication prices (as expected) and transport prices, in particular second-hand cars (-2.8% qoq) and domestic airfares (-7.8% qoq). The elevated NZD also contributed to subdued prices for imported retail goods.
The key surprise for us was the weakness in tradable inflation, largely due to the fall in transport prices. Anecdotes have suggested that unsold inventories of second-hand cars had been relatively high due to weaker than expected demand, which is likely to have prompted discounting over the past two quarters. Vehicle registrations show demand for cars has gradually improved over the past year. However, there appears to have been a shift in preference toward new cars over second-hand cars.
Tradable CPI is now down 1.2% on year-ago levels, largely due to the elevated NZD. With the NZD to remain elevated over the coming year, we expect tradable inflation pressures to remain subdued over the rest of 2012. However, deflation in these areas is masking a lift in domestic inflation pressures.
Construction-related costs are starting to come through, as expected. Construction costs lifted 1% over the quarter, and were led by a sharp 3.4% increase in Canterbury construction costs. Construction inflation in Canterbury is now running an annual rate of 9.6%, although so far the knock-on impact to prices around the rest of the country has been muted, with Auckland construction costs remaining subdued.
The impact of the tight housing market is also evident with rental inflation remaining firm, led by increases in Auckland and Canterbury. This is consistent with housing market indicators which suggests supply of housing remains very low relative to demand.
Insurance premiums for housing continue to increase, with a 17% increase recorded over Q3.
Implications: OCR view change, nonetheless
We now expect the RBNZ will wait until September before lifting the OCR (previously June). Our view shift is largely based on other factors than the muted Q3 inflation outcome.
The slow pace of Eurozone crisis resolution, coupled with dim Eurozone growth prospects, and likelihood of further RBNZ caution over persistent NZD strength all argue for a much later start than June. But we remain wary about the housing market in an environment where mortgage rates are likely to remain very low well into 2013 and risk further boosting demand in a supply-constrained market (notably in Auckland).
We expect that ongoing strength in the housing market, coupled with gradually rising domestic inflation pressures (some of which were evident in today’s release), will push the RBNZ to start gradually tightening in the closing stages of next year.
JP Morgan Australia
New Zealand’s CPI grew 0.3% for the second quarter in a row in 3Q (J.P. Morgan 0.4%q/q, consensus 0.5%q/q), and the tradable/non-tradable split was also little changed, with domestically-determined prices up 0.5%q/q, as in 2Q, and tradables prices flat (from +0.1%q/q). The slight downside surprise through the traded channel pushed annual inflation down to 0.8%oya, and below the RBNZ’s 1%-3% target band for the first time since the late 1990s.
This fact takes on a little more significance in the lead-in to next week’s OCR announcement, the first from the new Governor. Governor Wheeler signed a new Policy Targets Agreement a few weeks ago, which nominates the 2% mid-point as a more explicit focus.
This presumably is meant to project less tolerance for deviations from the band, which carries some weight in the absence of any other information about his policy leanings: he is an external appointment, and we have yet to hear from him outside of the PTA formalities since he took over the reins a couple of weeks ago.
Despite all this, in our view, today’s numbers don’t add much to the domestic economic story, and shouldn’t have policy implications either. The weakness in annual inflation shown today was largely baked-in due to the contraction in prices 4Q11 that accompanied supply normalization in produce prices.
That base effect falls out in the next quarter’s data, such that even maintenance of the current run-rate would see annual inflation jump back to 1.5%oya, comfortably within the band.
Second, there has been no loss of momentum in non-tradables inflation, and the path of the GDP and consumer spending data have been playing to our script of above-trend demand side activity. These facts, of course, also explain why Governor Bollard did not see fit to cut rates over the last eighteen months.
At least initially, we feel Governor Wheeler will be biased to tracing the path drawn by his predecessor, which argues for keeping rates on hold until the economy has garnered sufficient momentum in 2013.
ANZ
Q3 CPI rose 0.3 percent, softer than market expectations and the RBNZ forecast of a 0.5 percent rise. Annual inflation eased to 0.8 percent, a 13-year low.
Core readings were benign. Non-tradable prices rose 0.5 percent in the September quarter, consistent with the directional signal provided by our Monthly Inflation Gauge. Prices in the weighted median measure rose 0.3 percent q/q, and there was a 0.1 to 0.2 percent lift in the various trimmed mean measures.
While the general picture remains benign, compositional (firming construction costs) and regional aspects (Canterbury) are testament to inherent tensions within the inflation portrait. Our (and the RBNZ’s) focus is on the medium-term outlook.
With much of the undershooting in inflation over the past year coming from tradable inflation, and the NZD likely to remain elevated given structural challenges for the USD, we are closely watching transmission channels into non-tradable pockets of the economy. Key here are inflation expectations and the labour market. If both show weakness the case for a rate cut will grow.
For now we remain comfortable articulating a “lower for longer” interest rate theme, with our core view centred around the OCR not lifting until 2014.
BNZ
As expected, today’s Q3 NZ CPI (0.8%y/y) release was below market expectations (1.0%). Indeed it was below our own expectations (0.9%).
The fact annual CPI dropped below the bottom of the target band (1%-3%) for the first time ever, was bound to catch the market’s attention.
Still, the question really is: Does this outcome materially change our view and the RBNZ’s view of inflation over the medium-term? If it does not, the market’s response to the data creates an opportunity to pay swap at the very bottom of its range. If it does, then it suggests ‘the range’ that has held since May this year is no longer.
The market now prices around 35bps of RBNZ rate cuts in the year ahead. We have been here before. Since April the market has fairly consistently priced in some chance of a RBNZ cut. In late May/early June more than 40bps were priced. The catalyst at that point was heightened European concerns that impacted on global risk appetite. A surprise 50bps rate cut from the RBA also contributed, as did a tick up in the NZ unemployment rate to 6.7%.
This time, the triggers are a little more ‘home grown’ in nature. Global sentiment is actually fairly solid at present (though risks certainly lurk). This time the market is more focused on recent uninspiring domestic data, and now a low-side inflation reading.
As laid out in today’s note “Low Inflation Greets New RBNZ Governor”, we still believe there are notable hurdles to an RBNZ cut. We see the chance of a 25bps rate cut at around 40% (not the 140% chance now priced by markets).
So although times of heightened uncertainty make high conviction calls more problematic, it is when uncertainty is highest that opportunities are often presented.
In this light, we stand behind our view expressed ahead of the CPI release, that a lower than expected CPI print would likely create a paying opportunity for short-end swaps. We see 2-year as attractive paying at current levels (2.51%). The stop would be tight at 2.45%, looking to re-enter the trade at lower levels if the market moves to price more than 50bps of RBNZ rate cuts. 5-year swap at current levels (2.93%) is also attractive paying, with a stop loss at 2.85%.
After today’s data, the market will now have its mind clearly focused on next Thursday’s RBNZ meeting. The market in fact, now prices around a 25% chance of a cut at next week’s meeting. We see this as very unlikely. Today’s data may force the RBNZ to probe its convictions on its forecasts for a rising inflation trajectory from Q3.
However, it does not provide any smoking gun for an immediate cut. We continue to believe the meeting will be a fairly low key affair. As the first meeting under the new leadership of Governor Wheeler we expect a fairly neutral statement. If cuts are not directly referenced in the statement, market pricing could rebound from this week’s lows.
We also remain unconvinced by the argument that the RBNZ should follow the RBA’s course lower. Without detailing the differences in the outlooks for each economy it is also worth remembering the starting point. The RBA cash rate remains 75bps above the RBNZ’s. On average since inception the RBNZ’s OCR has sat 40bps above the RBA’s target rate.
An alternative strategy for those who remain somewhat nervous about the OCR outlook, is to position for curve steepening. We recently recommended a 2s-10s steepening position when the curve dipped to 95bps.
At that time, our view was premised on (i) the curve being well below the lower edge of our fundamental ‘fair value’ (130bps) (ii) potential corporate/local authority paying moving out along the curve (iii) expected stable to higher US bond 10-year bond yields (iv) the fact 95bps technically represented a level from which the curve had previously rebounded. These arguments still hold. We expect these drivers should dominate in our central case that OCR expectations rebound from current lows.
Alternatively, if the market prices increased expectations of OCR cuts it will likely be reflected mostly in lower short-end yields. The 2s-10s curve has in fact steepened a few basis points today (103bps currently) post the CPI release. A curve steepening position thereby provides some hedge against the market pricing more OCR cuts.
(Updates with Westpac, ASB, JP Morgan reactions, Infometrics OCR comment.)
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34 Comments
The result does beg the question why we have so actively destroyed manufacturing and exporting jobs, with the related surge in the current account deficit, only to significantly fail on the underside on inflation. If inflation was threatening 3% plus, you would just about understand killing your productive base- although even then such policies need a rethink.
It surely is time to err on the side of giving exporters, import substituters, and domestic tourism half a break, and cutting with some urgency. We should also be looking through the Christchurch rebuild effect; or that will cause yet further implosion in our productive base, which will never be got back. So take a half a chance, Mr Wheeler.
We are constantly told (and I agree) that nzers dont invest. Thus foreign money comes in to invest. And lend to us. We are told exchange rate is thus high.
Solution - nzers spend less of income. Invest cash surplice. Sequence above goes into reverse. Doable. Probably wont happen.
KH,
I actually have considerable sympathy for your point; and more than my initial reaction, which is to primarily blame government and reserve bank policy. It is a little frustrating that more New Zealanders who reasonably could have saved (and invested more) have apparently not done so. It does seem the keeping up with the Jones's lifestyle; and the temptation of easy money is too tough for some to avoid.
Nevertheless we are now in a highly indebted state; with a loss of ownership of productive assets thrown in. As well, productive exporters, import substituters etc do not have the easy choices that maybe consumers have had; and they really are being hurt by the over high exchange rate. There are things the government can do about that. But they seem determined not to take any action at all.
And on the consumption side, in slight defence of consumers; all the price signals from a too high exchange rate encourage buying overseas made products or services ahead of locally made ones. That balance needs to change.
actually is the high OCR and no cgt our worst enemies? What I cannot fathom is if there is a return on an asset, say its 10%, whether a NZer buys it or a foreign investor they can both only get 10% back. Yet foreigners can afford to pay more, how come? I cant believe they have the $, it must be mostly borrowed.
So what is going on here? are NZers to greedy? or are alternatives like housing too easy? or is it our borrowing costs are so high that a NZer cant afford to borrow?
regards
steven,
Its an imporrtant question that I think the Reserve Bank should be all over. I confess to not knowing all the details of the money coming in, but I suspect some of the following main players:
1) Determinedly surplus countries governments printing money and buying foreign assets, including NZ government bonds. Such countries use such methods to partly keep their own currencies down and partly to spread their investments and ownership of as much of the world as they can before it becomes politically unacceptable; and as long as the capital value of whatever they buy does not depreciate too much, and they get some interest return, they are happy.
2) Swiss Kiwi bonds, eurokiwi bonds, Uridashi (Japanese) bonds etc where private individuals in those countries, who have a much higher culture of saving, are looking for any return at all, as their own interest rates are pretty much zero.
3) Countries where people put a high value on property assets but where maybe their own countries property has become too expensive, or their laws are not perfect, or they are hiding or laundering profits, or they want a bolthole if things at home get tough. I'm thinking China here in honesty. Their people are buying some property and farms, and the price doesn't matter too much. They will take a long term view at almost any price.
4) All of the above finding ways to buy up our sharemarket and productive economy although I'm not often convinced, in an economy growing way. If they buy our power companies for example, are they really going to grow them? I don't think so.
Although I'm not against a CGT, I dont think it would make one iota's difference to most of the above. New Zealanders are borrowing their money; too much is the answer. I don't think New Zealanders are greedy; although not enough seem to understand that much of the real income in the world now comes from ownersip of stuff; and not from working whatever it is that is owned. I do think NZers have become addicted to some luxuries such that they think they are necessities.
Having said that the banks in particular are active marketers of this cheap money; and it only takes one person in a sales chain to spend the proceeds rather than save, for the exchange rate effect to take hold. I do think that if the supply of foreign funds was reduced or limited, we would not find it that hard to cope; (although some may need replacing by printed NZD to keep the economy going) and our businesses would find things much easier.
No doubt a much longer answer than you were thinking of. Apologies for that, if you got this far.
No need to apologise, a good read.....I like to see ppls logic, it expands my own.....
1) Today yes we have printing now buying assets, but 10 or 20 years ago? Id have said no.
2) OK...which then flows onto why do our OAPs expect high interest rates when OAPs in many other countries do not (or have got used to not).
3) Property, well someone said to me a while back that he thought the best managers and business minds had left NZ for better pastures. He considered what is left as mostly second rate.....I wonder if that doesnt also flow into small "businesses" here, ie its easy for the not so great to invest in housing for a good return unlike running a large business.
4) CGT well most other countries have one, I assume not having one is an advantage for foreigners....hence I think we should have one. Mainly though its also a tax free profit, sorry but all profit should be taxed more or less equally to my mind.
5) Banks well we have borrowed easily....and it seems continue to do so but of our onw free will. What mystifies me is how do ppl expect to pay the house off if they keep taking out money for another ipad or holiday and I know ppl are. We are not going away this year, simply cant afford it and have me build a kitchen. Damned if Im taking out more debt....though Im tempted for 5k worth of wood to do what I need to in one go and get a 300L hws cylinder....ah well.
Foreign funds reduced, yes, and thats one of my key concerns, ie I worry/wonder just how that will play out its a huge unknown and maybe nasty. Sort of glad its not just me wondering about that as a problem.
regards
steven,
Glad you enjoyed it. By the by I wrote it before reading todays top 10; which talks of the dodgy Chinese money being very significant overseas and probably here..
On improving your kitchen, I don't think that's a bad investment at all. You'll enjoy it but also almost certainly improve the value of your house.
The notable spend I see among my friends and acquaintances that sticks with me is overseas holidays. Am also a huge fan of NZers seeing a bit of the world, but its got ridiculous. I have friends playing golf in Vietnam every year; others taking winter hols anywhere. The telling thing is that my wife comes home sometimes and says so and so is going somewhere; we have to go. As it happens we can afford to, but I ask why would you really want to go to Hawaii, sit in a plane for 10 hours to go shopping. But its cheaper than going to Queenstown, because the exchange rate is out of whack. I've donated to two different schools in the region to send their first fifteens to Italy; and Argentina respectively. Relatively low socio schools. What happened to 10 days on the Gold Coast and NSW if anything at all? Peer pressure is a big thing.
The Brits used to be the biggest travellers on the planet. The pound dropped by 25%; and they stopped overnight. Haven't really missed it as far as I can tell.
Would foreigners who are not resident have to pay a CGT? Am not at all sure they would.
I actually think an annual property tax might work better payable by any property; would have some cashflow problems until an asset was sold. Maybe exempt the family home; as possibly a CGT would. But if its CGT, then fine.
Good discussion. Marx identified it right. "The benefit always flows to the owner" The foreigners understand this but nzers don't. That's why they accept apparent low returns - but strangely end up wealthier than nzers. The path to wealth is owning your stuff. Even better if you own other peoples stuff.
So we need to own - or save - or invest. They are much the same thing.
Starts off hard - takes time - but just gets better and better.
NZers need to change our view
THERE IS NO BUSINESS LIKE BOND BUSINESS. STILL. Antal E. Fekete http://www.professorfekete.com/articles/AEFNoBusinessLikeBondBusinessSt…
Have updated with reaction from Westpac, ASB and Infometrics.
Also, here are the Green Party's comments on the figures:
Today’s record low inflation figure of 0.8 percent, below the Reserve Bank’s target band, gives the Bank scope to cut the Official Cash Rate later this month, the Green Party said.
A lower Official Cash Rate (OCR) is likely to lead to lower domestic interest rates which, in turn, will take pressure off our overvalued exchange rate, helping exporters and manufacturers who compete with imports.
“Low inflation gives the Reserve Bank generous scope to cut the OCR as a first step to addressing our overvalued currency,” said Green Party Co-leader Dr Russel Norman.
“The overvalued New Zealand dollar is hurting exporters and manufacturers who compete with imports – one of the main drivers of massive job losses in this sector and contributing to our worsening current account deficit.
“Unfortunately, the Reserve Bank’s historic focus on maintaining price stability at the expense of the economy has meant monetary policy has been in conflict with addressing more pressing issues like economic rebalancing, the unsustainable current account deficit, and high unemployment.
“A broader mandate for the Reserve Bank is well overdue and the Bank will need more tools to manage price bubbles during a period of low interest rates.”
The IMF's latest World Economic Outlook report (WEO) provides evidence that the New Zealand economy would prosper if it adopted a more flexible approach to monetary policy protecting jobs and rebalancing the economy. The report notes ‘declining inflation rates, growing slack, and sizable fiscal adjustment in the advanced economies argue for maintaining very accommodative monetary conditions, including unconventional measures’.
“Most of our trading partners are using tools that lower their currencies to rebalance their economies towards exports and job creation,” Dr Norman said.
“The National Government promised to rebalance the economy, but their high dollar strategy is slowly bankrupting the country and costing New Zealanders good jobs.
“National has defended its do-nothing approach to the high New Zealand dollar on the basis of the risk of inflation, but today’s inflation figure reinforces what the IMF has already said: Inflation is not the risk facing the world, or New Zealand.
“While the rest of the world adopts modern monetary policy, the National Government is doing nothing. That's costing thousands of manufacturing jobs and leaving New Zealand deeper in debt.”
The Green Party have proposed a suite of measures to put downward pressure on the New Zealand dollar that includes lowering the OCR, introducing new tools to stop housing bubbles, introducing a comprehensive capital gains tax (exempting the family home), and a programme of targeted quantitative easing to rebuild the currently empty Natural Disaster Fund.
The Green Party proposal for lowering the high Kiwi dollar:
http://www.greens.org.nz/press-releases/greens-offer-suite-measures-address-high-kiwi-dollar
World Economic Outlook, October 2012, IMF:
http://www.imf.org/external/pubs/ft/weo/2012/02/pdf/text.pdf
So.....what happens when the data goes negative..Imagine the ocr being slashed to just .25%...dirt cheap credit right...but Kiwi refuse to borrow and smelling the dead rat, they spend even less and speed up debt repayment.....retail govt revenue theft declines yet more...gst bumped up to 17.5%...spending slashed again....layoffs pick up speed...deficit grows larger..
This is not pipedream stuff....peasants are sick to death of the lies and manipulation in favour of the parasites continuing to feast off the economy....sucking the wealth from the people.
Oh what a wicked world when the market refuses to buy the drugs...when the inflation wished for, fails to arrive and the people opt for a frugal thrifty 'stuff the banks' approach to life.
I think the inflation calculations missed including my recent house/contents bill which went up 55% in one year on a policy with no claims in more than 30 years...... and missed the continued 10% per annum rise in rates.... and missed the 20+ % increase in car insurance. ... and missed the 20+% increase in electricity prices this year.
But I guess flat screen televisions did decline a bit further, so all is well for the bureaucrats who reside on The Terrace.
Am cautious about advising this; but I haven't had contents insurance for some years. I have a fairly secure house in a pretty good area; and could easily afford to fix anything nicked or broken, so self insuring has worked fine.
As it happens, my insurance company this year also insisted I pay for a valuation for me to have the privilege of continuing to insure my house with them. With no mortgage; and no earthquake risk where I am, halfway up a hill, so no flooding risk, it really only is fire to be concerned about on any significant scale. Manage that risk, and self insuring made sense. While total destruction would be inconvenient, I could afford to replace anything broken, including the house if it came to that.
So am saving I think $150 to $200 a week in insurance costs.
May or may not work for you.
Billsay - and what you have written is pretty much on the money. I saw a lady gasp at the supermarket yesterday with a half-full trolley costing her $350. The inflation calculators are only as good as the information fed into them.
Something doesn't appear to be right from what is officially recorded and what is actually happening.
http://www.tradingeconomics.com/new-zealand/inflation-cpi
http://www.tradingeconomics.com/new-zealand/consumer-price-index-cpi
http://www.tradingeconomics.com/new-zealand/producer-prices
http://www.tradingeconomics.com/new-zealand/import-prices
http://www.tradingeconomics.com/new-zealand/gdp-deflator-imf-data.html
All I can say is, are you in chch?
I got my AMI re-quote this month,
Yes the House is up 50%
Contents, no real change.
cars no real change.
The EQ levy on the house is x 3 though
AMI's premium is $20 up....$39 to $59....ouch....did about the same last year (about $37)....double ouch.
I got an alternative quote and got the same number +/- $1 or so....so Im stuck with it.
:/
My rates have averaged 5% per annum over the last 15 years, 10% is crazy, thats a doubling in 10 years.
My power went up about 10%, so shop around I do.
TV's yes sure, got $600 off one plus a free bluray player "worth" $500, got $500 off a fridge, just got $450 off a bosch saw......
Internet is now down to $1 per 1gb...and its looking like $1 per 2gb inside 18months, or my bill will half what it is now for more when UFB gets here.
Food I cant get a bead on I'll admit, its about the same or up a bit, I would have said more than 1%.
So on balance you need to consider all the spending over the [multi-]year, Im not to displeased in some ways....I am worried we'll see companies start to give up the ghost and un-employment will rise.
regards
Reaction from the Labour Party:
The lowest price rises in over a decade show that inflation is no longer the only pressing economic issue and the Reserve Bank must be given the ability to give equal consideration to the exchange rate, as Labour’s Finance spokesperson David Parker has long argued.
“Inflation is at its lowest in 13 years while the dollar is over-valued and crippling our exporters,” says David Parker.
“Yet the Reserve Bank is tasked primarily with controlling inflation and pays insufficient attention to our overvalued and damaging exchange rate. This is despite a $10 billion external deficit, which is worse than every developed country bar Greece.
“National’s economy is stagnating, manufacturing outside primary produce is in crisis and jobs are being cut every week. It’s the dollar that’s causing this, not inflation.
“The Reserve Bank’s primary task is to control inflation, but inflation isn’t the current problem. Labour has long argued that the Reserve Bank must be able to look beyond inflation and give equal weight to other important issues such as the exchange rate. That would help our exporters and manufacturers and allow them to create good jobs that pay a decent wage.
“Labour wants to change the Reserve Bank Act so that the Bank can consider the exchange rate and no longer give primacy to inflation,” says David Parker.
The IMF's latest World Economic Outlook report (WEO) provides evidence that the New Zealand economy would prosper if it adopted a more flexible approach to monetary policy protecting jobs and rebalancing the economy. The report notes ‘declining inflation rates, growing slack, and sizable fiscal adjustment in the advanced economies argue for maintaining very accommodative monetary conditions, including unconventional measures’.
I think , Alex, Mr Norman took liberty with the word evidence.....as it was more an over view of the IMF on the current Global situation.
In opening remarks at the conference that Bernanke addressed on Sunday, IMF chief Christine Lagarde said aggressive steps by the Fed, the European Central Bank and the Bank of Japan were "big policy actions in the right direction."
On the one hand La Garde said the U.S. being the global reserve currency with a captured audience, was on the "right Track" with QE measures, while supporting Bernanke's statment that emerging economies or middle scale economies would need definitive policies to combat the pressure on their currencies.
As In...."Under a flexible exchange-rate regime, a fully independent monetary policy, together with fiscal policy as needed, would be available to help counteract any adverse effects of currency appreciation on growth," Bernanke said.
Now there's no real evidence at least according to Brazil and similar screamers.
I think it more a subtle way of saying , there other ways to combat currency pressures outside of the print policy, but we may (or the banks ) may have to make some sacrifice in profits gleaned from bubble blowing or the like.
So Mr Wheeler,
Pretty much all your instructions are in. Only the ANZ left to go. The banks of course want to keep rates high. The Nats presumably will try and spin this positively; but Labour and the Greens logic remains compelling. (I challenge anyone to explain in detail how they are wrong on this particular issue).
Aussie has dropped its OCR; and will likely go further still. So no action will likely result in the NZD going to even more bizarre heights.
So, an interesting call. You are supposed to be independent. What will independence actually look like in your regime?
There are Global Masters to be answered as well. Aus, NZ, & parts of Asia are safe havens for $$$ fleeing Eurozone etc so they require certain returns.
JK & RBNZ have to answer to the IMF & Fed so do not really have true objective independance.
There is a plan (Globally). We are a small flea on the tail of the dog.
We have lost our sovereignty. We cannot act in our own best interests.
Otherwise we would be cutting as a straightforward option (if we wanted to help ourselves).
Stephen L....pretty much the summation I was making there, in that the banks would need to make sacrifices to their bloated profits from bubble blowing.
Now Wheedler, will be looking to wheedle out of this with some credibility, without appearing a Bank Toady or perpetuating the environment of contempt prevalent in the National Party........how will he go about it...?
With the tried and true...Wait ...See...Do...Nothing...wait some more....target inflation bla bla bla..pay lip service to diminishing MFG exporters bla bla bla......possibility of further cuts if Yawn bla bla bla.
However I think , more regulatory thought has to be considered in regard to bank lending behaviour......more consideration on volume and length trades as in FTT's....before subscribing to the print option.
There does appear over the longest time, to be a culture of protecting Banking interests in N.Z. (particularly the big four's) on the part of the RBNZ at the expense of the export economy.
The RBNZ's independence from political influence isn't the only independence in question, and I think it fair to say , that to believe , the RBNZ is without influence from both considering the lack of amendment to benign policies, would be naive to say the least ,given staying with inflation targeting has become the most piss weak of excuses for non involvment.
Bollard admitted it a few weeks ago. Keep the big banks fat and profitable because this makes them safer - adopting the Aussies 4 Pillars policy. The banks milk it for all its worth and use the armageddon threat to thwart reregulation and crimping of their profits.
So kiwibank is the sole difference between us and the occer setup? I for one will be livid if the RB cuts and the banks dont pass it on entirely. What are the chances? Ive read the 'decoupling' bollocks. Tosh. How have they got away with it over there without some decent protest? Not that I follow events over there closely, cursory flick over the sydney morning herald, at best. Are we, the general NZ public that lame?
Well the banks are saying that they only follow the OCR to let the RB take the flak on changes....and they'd like to or will stop following it. In terms of bolloks, well we need to know what the banks are getting their funds at, if its say 4.5% and is steady then what the RB does to the OCR is moot, and the banks are right.......I suspect the banks are in a difficult postion moving forward as the OCR drops, but then they deserve all the beatings they get IMHO.
regards
Agree...thats a downward trajectory he has to correct and he has to do it pretty soon or it risks getting worse and un-fixable...
Hello 1% drop.
In terms of Green and Labour maybe detail how they are right, Ive seen little to substantiate their side either...
Just lots of hot air from all of them....
regards
Exactly Wolly !!! Have an interesting story from a builder who was doing a repair on a house. The builder had told the insurance assessors that the roof had damage from the earthquakes and so the assessors arrived on site to take a look. The assessors weren't allowed to go on the roof to do an inspection by ladder as they apparently had some in house policy to follow - i.e. they weren't qualified to climb a ladder. They requested that the builder place a section of scaffold up so they could do the roof inspection.
I.m amazed the cost of building a home hasn't gone higher than the 10% with the enormous increase in foundation costs, bureaucracy etc. There's obviously some who are sharpening their pencils and some who with a whole in their pencil.
Well some of us are doing very nicely thankyou taxpayers
http://www.stuff.co.nz/national/politics/7827706/Huge-ACC-salaries-reve…
Outgoing ACC chief Ralph Stewart is being paid a salary of up to $760,000 - and 330 people are on more than $100,000 a year, new figures reveal.
An annual report from the embattled state insurer shows big wage increases in the last year - with the number of people on more than $100,000 up 18 per cent.
The next highest-paid employee is on between $720,000 - $730,000, while another employee is paid between $670,000 - $680,000.
Ten employees are on more than $500,00 per year - four more than last year, and 29 are being paid between $200,000 and $400,000 a year.
So the [bank] economists are arguing that the sector(s) granted effective monopolies or the crazy gamblin scene that is property is doing fine thanks (no im not surprised). Meanwhile the productive sectors that pay their wages are struggling as witnessed by the deflation and need help....but no matter lets not bother with those.
FFS guys stop thinking of your own bonuses and pay attention to the bit of NZ that its not profitable for you to lend to but which we all need.
35basis points should just be a start...let this continue much longer and 200 points will be too little, too late...
I'd suggest 100 points cut really soon, then see who blinks.
regards
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