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

 

Interest Rates: RBNZ Hikes OCR To 3.5%, ‘Period Of Assessment’ Now Needed

Reserve Bank governor Graeme Wheeler raised the official cash rate as expected, while signalling a pause in rate hikes to assess the impact of moves so far this year. The kiwi dollar sank after Wheeler said its strength was “unjustified” and that the currency could have “a significant fall.” More>>

ALSO:

Fonterra: Canpac Site 'Resize' To Focus More On Paediatrics

Fonterra is looking at realigning its packing operations at Canpac, in the Waikato, to focus more on paediatric nutritionals... The proposed changes could mean around 110 roles may not be required at the site which currently employs 330. More>>

ALSO:

Scoop Business: Postie Plus Brand Gets 2nd Chance With Well-Funded Pepkor

The Postie Plus brand is getting a new lease of life after South Africa’s Pepkor bought the failed retailer’s assets out of administration and said it will use its purchasing power to reduce costs of stock and fatten margins. More>>

ALSO:

Warming: Warming Signs From State Of Climate Report

Climate data from air, land, sea and ice in 2013 'reflect trends of a warming planet' -- says the latest State of the Climate report, launched by U.S. and New Zealand scientists. More>>

ALSO:

Scoop Business: Embrace Falling Home Affordability, Says NZIER

Despair over the inability to afford a house is misplaced and should be embraced as an opportunity to invest in more wealth-creating activity, says the principal economist at the New Zealand Institute of Economic Research, Shamubeel Eaqub. More>>

Productivity Commission: NZ Regulation Not Keeping Pace

New Zealand regulators often have to work with out-of-date legislation, quality checks are under strain, and regulatory workers need better training and development. More>>

ALSO:

Callaghan Innovation: Investment To Help Deepen Innovation Reporting

Callaghan Innovation, the government’s high tech HQ for Kiwi business, is to help deepen New Zealand media coverage of the commercialisation of innovation through an arms-length partnership with independent business news service BusinessDesk. More>>

ALSO:

Tax Credits, Grants: Greens $1Bn R&D Plan

In the Party’s headline economic announcement, the Greens have launched their plan to build a smarter, more innovative economy which has as its centrepiece an additional $1 billion of government investment in research and development (R&D) above current spend, including tax breaks for business. More>>

ALSO:

Get More From Scoop

 
 
Computer Power Plus

Standards New Zealand

Standards New Zealand
 
 
 
 
 
 
 
 
Business
Search Scoop  
 
 
Powered by Vodafone
NZ independent news