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NZ retail jumps 1.0% in April on autos, trend flat

New Zealand retail sales jump 1.0% in April on autos, but trend flat

New Zealand retail sales jumped 1.0%m/m in April (JPMorgan 0.2%, consensus 0.4%), rebounding from a 1.2% fall in the previous month. The headline number was lifted by an 8.1%m/m spike in motor vehicle sales, an unusual surge in smash repair and tire sales (+16.6%) and other vehicle repairs (+9.5%). Stripping out the autos component, retail sales declined 0.5%m/m, after falling a revised 0.4% in March (previously 0.5%).

The surge in the headline retail sales number was not only a payback for the sharp fall in the previous month, but also owing to the volatile autos component, which includes the four vehicle related industries. Of these four industries only fuel retailing fell (-2.2%m/m). The trend in retail sales remains weak, however, rising just 0.1%m/m in April.

The negative wealth effects from the sharp deterioration in the housing market are creating significant headwinds for the household sector, already under pressure from record high interest rates and rising prices for staples, such as food. Furthermore, a number of domestic banks have passed on higher funding costs resulting from credit market tightening, even though the official cash rate (OCR) has remained steady since July. The labour market also has shown signs of loosening. Employment contracted in 1Q and growth in private sector labour costs slowed. With business confidence plunging, companies are likely to be even more reluctant to hire workers going forward.

Weaker private consumption growth is one key reason why economic growth will slow to a standstill in coming quarters. We currently forecast two negative quarters of growth in 1Q and 2Q. But, while economic growth may stall, widespread inflation pressures will prevent an imminent rate cut. Pipeline pressures continue to build, non-tradables inflation remains elevated, and inflation expectations are rising. The RBNZ expects annual CPI to peak at 4.7% in 3Q, before returning to within the target 1-3% band in the medium term. That said, after leaving the OCR steady at 8.25% earlier this month, the RBNZ said it may be “in a position to lower the OCR later this year” if the economy “evolves” in line with its projection. We maintain our forecast that the RBNZ will cut the OCR 25bp in October and December, and again in 1Q09, although the risk is definitely tilted towards an earlier move.

The details:

• Total retail sales were up 1.0%m/m, rebounding from a 1.2% fall in March. Fourteen of the 24 retail industries had increased sales.

• Supermarket and grocery stores sales fell 3.6%m/m.

• The core retailing group, which excludes the four vehicle-related industries, fell 0.5%m/m.

• Motor vehicle sales accounted for a large part of the rise in total retail sales, up 8.1%m/m.


ENDS

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