Video | Agriculture | Confidence | Economy | Energy | Employment | Finance | Media | Property | RBNZ | Science | SOEs | Tax | Technology | Telecoms | Tourism | Transport | Search

 


Building inflation pressure could start to be a concern

HSBC Research_The RBNZ Observer: On hold, although inflation risks are rising

- While inflation was low in Q2, pockets of inflation pressure are starting to emerge and could start to concern the RBNZ

- At the same time, activity is strengthening, with indicators pointing to strong growth in H2 2013

- We expect the RBNZ to hold steady this week, but see the next move as a hike and expect it to come around year-end

Building inflation pressure could start to be a concern

While inflation was low in Q2 (+0.7% y-o-y), there are growing signs that it is picking up pace. This month brought the Q3 inflation expectations indicator, which jumped to 2.4% from 2.1%. While we expect the RBNZ to hold steady at this week’s meeting, we expect it to flag some growing concerns about the inflation outlook in its quarterly official statement.

In addition, the -6.4% fall in the NZD since April is also likely to see some upward pressure on the inflation outlook. Plus, construction cost inflation, on a quarterly basis, had already reached rates seen during the 2000s housing boom, in Q2 CPI numbers.

At the same time, timely indicators of business conditions suggest the local economy is going from strength to strength and is likely to hit capacity constraints fairly soon. The Canterbury rebuild will continue to boost the economy for a number of years. In addition, the housing market remains strong. We expect the recent rise in fixed mortgage rates and the imposition of LVR restrictions to be offset by the recent lift in inward migration.

Housing strength is also spilling over into the wider economy, with retail sales rising +4.3% y-o-y in Q2. The RBNZ flagged the potential for spill-over from the housing boom to other sectors as a key risk in its last policy statement, and this strength in consumer spending is expected to continue as interest rates remain low and the housing market remains solid.

The external sector story also looks positive. The drought was a drag on growth in Q2, but commodity prices have increased strongly in recent months. New Zealand’s terms of trade are close to the highs reached in 2011. Coupled with a lower exchange rate, this will likely provide a boost to rural incomes and confidence through H2 2013.

While low Q2 inflation should keep rates on hold this week, we expect the RBNZ may need to contemplate lifting rates soon, perhaps as early as year-end.

ENDS

© Scoop Media

 
 
 
 
 
Business Headlines | Sci-Tech Headlines

 

Scoop Business: Equity Crowd Funding Carries Risks, High Failure Rate

Equity crowd funding, which became legal in New Zealand this month, comes with a high risk of failure based on figures showing existing forays into social capital have a success rate of less than 50 percent, one new entrant says. More>>

ALSO:

Scoop Business: NZ Migration Rises To 11-Year High In March

The country gained a seasonally adjusted 3,800 net new migrants in March, the most since February 2003, said Statistics New Zealand. A net 400 people left for Australia in March, down from 600 in February, according to seasonally adjusted figures. More>>

ALSO:

Hugh Pavletich: New Zealand’s Bubble Economy Is Vulnerable

The recent Forbes e-edition article by Jesse Colombo assesses the New Zealand economy “ 12 Reasons Why New Zealand's Economic Bubble Will End In Disaster ”, seems to have created quite a stir, creating extensive media coverage in New Zealand. More>>

ALSO:

Thursday Market Close: Genesis Debut Sparks Energy Rally

New Zealand stock rose after shares in the partially privatised Genesis Energy soared as much as 18 percent in its debut listing on the NZX, buoying other listed energy companies in the process. Meridian Energy, MightyRiverPower, Contact Energy and TrustPower paced gains. More>>

ALSO:

Power Outages, Roads Close: Easter Storm Moving Down Country

The NZ Transport Agency says storm conditions at the start of the Easter break are making driving hazardous in Auckland and Northland and it advises people extreme care is needed on the regions’ state highways and roads... More>>

ALSO:

Houses (& Tobacco) Lead Inflation: CPI Up 0.3% In March Quarter

The consumers price index (CPI) rose 0.3 percent in the March 2014 quarter, Statistics New Zealand said today. Higher tobacco and housing prices were partly countered by seasonally cheaper international air fares, vegetables, and package holidays. More>>

ALSO:

Notoriously Reliable Predictions: Budget To Show Rise In Full-Time Income To 2018: English

This year’s Budget will forecast wage increases through to 2018 amounting to a $10,500 a year increase in average full time earnings over six years to $62,200 a year, says Finance Minister Bill English in a speech urging voters not to “put all of this at risk” by changing the government. More>>

ALSO:

Get More From Scoop

 
 
Computer Power Plus
 
 
 
 
 
 
 
 
Business
Search Scoop  
 
 
Powered by Vodafone
NZ independent news