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.


© Scoop Media

Business Headlines | Sci-Tech Headlines


Land & Water Forum: Fourth Report On Water Management

The Land and Water Forum (LWF) today published its fourth report, outlining 60 new consensus recommendations for how New Zealand should improve its management of fresh water and calling on the Government to urgently adopt all of its recommendations from earlier reports. More>>



Welcome Home: Record High Migration Stokes 41-Year High Population Growth

New Zealand annual net migration hit a new high in October as more people arrived from than departed for Australia for the first time in more than 20 years. More>>


Citizens' Advice Bureau: Report Shows Desperate Housing Situation Throughout NZ

CAB's in-depth analysis of over 2000 client enquiries about emergency accommodation shows vulnerable families, pregnant women and children living in cars and garages, even after seeking assistance from the Ministry of Social Development and Housing New Zealand. More>>


Speaking For The Bees: Greens Call For Neonicotinoid Pesticide Ban

The National Government should ban the use of controversial pesticides called neonicotinoids after evidence has revealed that even at low doses they cause harm to bee populations, the Green Party said today. More>>


Get More From Scoop

Search Scoop  
Powered by Vodafone
NZ independent news