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Deutsche Bank : Retail Sales - February 2000

Data Flash (New Zealand)

Retail Sales - February 2000

Key facts

Retail sales (nominal, s.a.) rose 0.8% in February, following a 0.7% decrease in January. Average market expectations had been for an increase of 0.5%.

Sales were 10.0% higher than in February 1999, compared to an annual rate of increase of 5.2% recorded for January.

Commentary

The level of actual retail sales in February was influenced significantly by the additional trading day arising as a result of the leap year. Annual growth in actual sales rose to 10% yoy as a result of the extra trading day. However, Statistics NZ subtract the impact of the extra trading day from their estimate of the seasonally adjusted movement. Thus monthly growth printed at a more modest 0.8%.

Around 90% of the seasonally adjusted rise in sales in February can be attributed to higher petrol prices. Underlying sales volumes appear to have been roughly flat. The latter may be partly explained by households diverting expenditure towards petrol and away from other goods and services. If so, this effect may unwind in response to recent falls in petrol prices.

Statistics NZ do not adjust for differences in the number of trading days when compiling the quarterly retail sales figures on which GDP is based. Therefore, seasonally adjusted nominal sales in Q1 will print significantly stronger than suggested by the sum of the monthly data, whilst Q2 will print significantly weaker.

Assuming moderate growth in seasonally adjusted nominal sales in the month of March (around 0.5%), nominal growth for Q1 could print at close to 2% qoq. However, given our expectation of a sharp increase in the retail trade deflator, volume growth would print below 1.0%.

Looking ahead, strong household income growth - due to growing employment, rising wage inflation and a strong bounce-back in farm incomes - should sustain trend growth of around 4-5% in nominal terms over the next year. Consumer confidence - at a 4 year high according last week's WestpacTrust survey - is consistent with that outlook.

Today's data is not expected to affect the RBNZ's decision on 19 April. We continue to expect a 25 bps rise in the OCR.

Darren Gibbs, Senior Economist

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