Latest news with #Toplis
NZ Herald
2 days ago
- Business
- NZ Herald
Inflation data delivers ‘green light' for rate cut, but food prices cause concern
'Home ownership (otherwise known as building costs) fell 0.1% in the quarter to be up just 0.8% for the year,' he said. 'The last time annual building cost inflation was this low was in the depths of the GFC and, before that, the 1998/1999 recession.' Weak building costs also flowed through to property maintenance which experienced 1.4% annual inflation, he said. There was annual deflation for furniture, furnishings and floor coverings, household textiles and household appliances. But the really worrying thing was that the cost of essentials was rising far faster than the remainder of the CPI, he said. 'There are a lot of ways that you can cut this but we reckon the things that are most essential are food, accommodation and energy (electricity, gas and petrol).' 'Our very back-of-the-envelope 'essentials index' shows the cost of essentials rising at around twice the pace of the remainder of the CPI.' The biggest concern was that food price inflation had accelerated to an annual 4.2% following a 1.6% quarterly increase, he said. As well as being a significant hardship for a large portion of the population, this was adding to the headwinds for the economic recovery. 'If GDP is to pick up meaningfully then household consumption has to rise. With effective real disposable incomes under so much pressure there is very little chance of an increase in real spending.' BNZ's early forecast for the current quarter was for prices to rise 0.8% in the quarter, taking the annual rate to 2.9%. Other economists have forecast the third quarter rate to rise above the upper limit of the RBNZ's 1-3% target range. 'We also acknowledge that there is some upside risk to this,' Toplis said. 'But the good news is that we believe that will be the peak with annual inflation back near the midpoint of the RBNZ's target band by this time next year.' A key assumption was that food price inflation would soon abate, he said. 'New Zealand commodity price inflation is already past its peak and this is normally a forerunner to domestic prices, particularly for food. There is even a chance that food prices outright fall.' BNZ also assumes further falls for petrol prices drift lower. With the economy continuing to perform below capacity, there would be continued downward pressure on non-tradeable inflation, he said. KiwiBank senior economist Mary Jo Vergara noted that tradeable inflation was on the rise. Mary Jo Vergara, Kiwibank economist. Photo / Supplied 'We're no longer importing deflation,' she said. Annual tradeables inflation lifted from 0.3% to 1.2%. 'The 4.2% increase in food prices accounted for 28.5% of the lift in headline inflation,' she said. 'Domestic inflation, in contrast, continues its (slow) move south.' Annual non-tradeables inflation fell below 4% for the first time in four years to 3.7%. 'Domestic inflation had fallen some way from its 6.8% peak in 2023, but it was still sitting high above the long-term average (around 3%). 'And that's despite such a weak domestic economy.' The persistence was due to lingering strength in 'administered prices' such as rates, insurance costs and power. Annual council rates and insurance costs were running well above historic averages, up 12.2% and 6%, respectively, she said. Households were also contending with high electricity charges, climbing to 9.1% annually. 'Given excess capacity still sloshing in the economy, domestic inflation should continue to head lower. But the pace of easing is being dictated by factors largely outside of the RBNZ's control,' Vergara said. 'That's a frustration.' Overall, the data added to the case for another OCR cut in August and suggested risks were tilting towards further easing being delivered sooner than previously expected, ANZ senior economist Miles Workman said. 'We have long been expecting the RBNZ will need to cut the OCR more than they have recently been signalling,' he said. 'With [this] data not the roadblock we thought it was going to be, the risk of a follow-up cut in October is now looking higher.' Liam Dann is business editor-at-large for the New Zealand Herald. He is a senior writer and columnist, and also presents and produces videos and podcasts. He joined the Herald in 2003.
NZ Herald
2 days ago
- Business
- NZ Herald
Rising prices a risk to Reserve Bank's effort to avoid inflation danger zone
'The balance of the volatile monthly prices came in a touch stronger than our assumptions for the month, although not enough to alter our pick.' BNZ is picking a 0.8% rise for the quarter for an annual rate of 2.9%. 'This is stronger than the RBNZ's May forecast of 0.5% [quarter on quarter] and 2.6% [year on year],' Toplis said. 'The RBNZ openly acknowledged near-term inflation upside in its July MPR [Monetary Policy Review], noting that 'inflation is expected to increase further in the June and September quarters toward the top of the MPC's inflation target band'. And the bank still confirmed an easing bias,' he said. 'So higher near-term inflation remains a risk to monitor but need not necessarily derail further reduction in the OCR if the RBNZ continues to look through the near-term pressure and focus on a subdued medium-term outlook.' Despite the risks, inflation would need to come in much worse than expected to prevent another OCR cut in August, said ANZ senior economist Miles Workman. 'The RBNZ will need to balance any upside surprise in the CPI against the signal from the high-frequency data, which is currently pointing to a stalling recovery and therefore downside risks to the medium-term inflation outlook,' he said. 'Given this, we think it would take a sizable upside surprise in the CPI to take an August cut off the table.' Westpac's Satish Ranchhod highlighted the contrasting trends for tradable inflation (internationally priced goods like petrol and food) and non-tradable inflation (domestically priced goods and services like rents and labour costs). 'In terms of the big CPI groups, we expect that domestically oriented non-tradables prices will rise 0.7% over the quarter,' he said. 'That would see annual non-tradables inflation slowing to 3.8%, down from 4% last quarter and continuing the gradual easing that we've seen over the past couple of years.' Non-tradable inflation traditionally runs higher than tradable inflation. 'Underlying that easing in domestic inflation has been softness in economic activity, which has seen muted growth in wages and service sector prices,' Ranchhod said. 'We've also seen very limited increases in both rents and the cost of new housing (the latter reflecting the more general softness in the housing market).' But even with that softness in domestic activity, overall non-tradables inflation was easing only gradually because of lingering strength in administered prices, like electricity charges, he said. Those increases meant domestic inflation is lingering above historic averages, and that would be a key concern for the RBNZ. 'On the imported front, we expect tradable prices will rise by 0.3% in the June quarter,' he said. 'That would see annual tradables inflation rising to 1.2% – a stark change from the past year when tradable prices had been flat or falling.' For the Reserve Bank, the focus would go to core inflation, which tracks underlying trends by stripping out volatile goods like petrol and food. 'Core inflation measures have been trending down in recent months and have drifted back towards or inside the RBNZ's target band,' Ranchhod said. 'We expect that core inflation will continue to gradually ease in June but will linger above 2%.' The main uncertainty around forecasts would be prices for discretionary household items, with the risks here on both sides, he said. Those items are mostly imported and include products like apparel, furnishings and other durable items. 'Household spending has been subdued in recent months, and that could have an even larger dampening impact on prices than we had assumed. However, prices for some items, like cars, can have sizeable swings on a quarter-to-quarter basis.' Liam Dann is business editor-at-large for the New Zealand Herald. He is a senior writer and columnist, and also presents and produces videos and podcasts. He joined the Herald in 2003.
NZ Herald
7 days ago
- Business
- NZ Herald
Inside Economics: NZ recession risks on the rise ... again! Plus: the boy who cried ‘tariff' – Trump's threats lose their bite
Recession fears resurface Nobody wants to be talking about another recession; we're supposed to be recovering from the last one (or was that two ... or three?). But sadly, there are some worrying signs that the fragile recovery petered out in the second quarter. Both the Production of Services Index and the Production of Manufacturing Index contracted again in June. These measures of business performance suggest that a large chunk of the economy is still in recession. The Production of Services Index recorded its fifth successive contraction in June. Apart from a positive bounce in January this year, it has been in contraction since March 2024. That's a hell of a tough run and reflects the gloom we're hearing from hospitality, retail and professional services. Meanwhile, manufacturing, which had started to pick up, faltered for the second month in a row in June. That's prompted BNZ head of research Stephen Toplis to publish a very gloomy note, revising down his expectation for the second quarter GDP to -0.2%. 'The last few days have seen a number of high-frequency activity indicators support our view that not only did the economy stall in the June quarter, but it is also struggling to gain momentum going into [the third quarter],' Toplis writes. 'Indeed, so poor have these indicators been that we have lowered our expectation for Q2 GDP to -0.2%, from zero, and have made exactly the same adjustment for Q2 employment.' Meanwhile, the Real Estate Institute of New Zealand (REINZ) Property Report for June showed the housing market remains subdued, with median house prices down again in Auckland. Commentators have focused on the oversupply of properties on the market and a lack of demand from buyers because of job market insecurity. We need the job market to improve to boost house prices, but we need house prices to improve and boost consumer confidence to improve the job market. Likewise, housing market demand is suffering from the falling net migration rate, but that won't turn around until the job market improves. The circuit-breaker might be more interest rate cuts from the Reserve Bank (RBNZ). But the RBNZ hit pause last week because of short-term inflation concerns. Of course, the recessionary conditions are meant to mean inflation will keep falling and the RBNZ will be able to cut further eventually. For now, though, we're stuck in a frustrating deadlock that risks further undermining already-weak business confidence. Lucky country? What's worrying about the situation is just how bad it would be if the agricultural export sector weren't enjoying its biggest boom in years. We don't have any control over export prices or agricultural production conditions, so you'd have to say we got lucky, although I suspect struggling retailers are feeling anything but. What we desperately need is for the domestic economy to pick up before the export price cycle turns against us. There is still hope, even though the wheels are turning painfully slow. I think the elevated export earnings will eventually work their way through to the urban economy. Economists also point out that the cuts the RBNZ has already made are still working their way through to consumers' pockets. Core retail spending was up in June, although Westpac economist Satish Ranchhod notes that rising grocery prices probably counted for some of the extra spending in the consumables category. More promising were increases in durables and apparel. Hospitality continued to struggle. As Ranchhod notes in his analysis, retail spending isn't going to pick up rapidly. But households with mortgages should see considerable relief in the coming six months. 'Compared to this time last year, fixed-term mortgage rates are around 170 to 200bps lower,' he said. 'The full impact of those declines is yet to be felt as most New Zealand mortgages are fixed for a period.' Over the next six months, around half of all mortgages would come up for refixing, giving many borrowers the chance to secure a much lower rate, Ranchhod said. 'The related increases in disposable income levels will be a boost for sentiment, and that should support a gradual recovery in spending as we approach the end of the year.' It feels like we've been saying that for two years now – but hang in there. Something's got to give eventually. Tariffs? What tariffs? In my diary, August 1 looks to be looming fast. But Wall Street investors seem to have decided that the new tariff deadline imposed by Donald Trump is too far away to worry about. Markets shrugged off his latest threats to impose 30% tariffs on the EU and Mexico, 35% on Canada and raise the base tariff for all countries from 10% to 20%. Wall Street indexes continued to trade near record highs on Monday. If the investors took these threats at face value, they would be extremely worrying, but I don't think anyone does anymore. The story of The Boy Who Cried Wolf comes to mind. Donald Trump's endless tariff threats are being treated as akin to one of Aesop's Fables. Leading with a big, aggressive threat is clearly a negotiating tactic for Trump. But each time he does it and then backtracks, he weakens his hand. Trump knows the risk of pushing too hard is that he'll cop an ugly Wall Street sell-off or a bond market rally that pushes up interest rates. His strategy has been to push to the limits of market tolerance and then pull back. He hasn't managed to do that this time. In the long run, Trump will likely achieve his goal of higher tariffs across the board. He'll have changed the global trade landscape and will be able to claim victory. In the short term, though, he's struggling to deliver the big bang he promised in April. No one really believes the big, scary numbers he plucks out of the air any more. Eventually, markets will have to grapple with the reality of higher tariffs. For now, they seem comfortable treating Trump's big proclamations as entirely hypothetical. The real measure of tariff impact The real measure of tariff damage arrived this morning in the form of the latest US Consumer Price Index inflation data (for June). By the time you read this, the numbers will be out already, and I'm loath to make any predictions. But whether good, bad or ugly, markets are likely to take the data a lot more seriously than the latest pronouncements from the White House. The inflation rate is a number that will have a direct bearing on the US Federal Reserve's plans for rate cuts (or lack of them). Investors will be watching closely to see what impact the first round of tariffs has had on pricing. Meanwhile, in New Zealand, we'll get our Consumers Price Index (CPI) data for the second quarter on Monday. Economists expect it will remain higher than the RBNZ would like. BNZ is pencilling in 0.8% for the quarter (from 0.9% in the March quarter). Butter Battles Q: Hi, can you please explain the economics of a pound of butter made from milk acquired from cows in Waikato and processed nearby into a product on the supermarket shelf in Hamilton costing me the equivalent of the same product in London? Various sources report the costs of transporting goods within New Zealand at 40% of a product's price, so I wonder how an economist can not account for the enormous expense of getting the pound of butter, the bottle of wine, the leg of lamb, the side of beef, the timber etc overseas. Thanks for any explanation. Regards, Peter A: Cheers, Peter. The price of butter certainly continues to grate with many people, despite my best efforts to explain the ups and downs of international pricing. Intuitively, it does seem strange that people on the other side of the world can be paying the same price as we do for a product made just down the road. But I was surprised by your assumption that transportation accounts for 40% of butter costs. Basically, by the time you stack a few tonnes on a truck, or many more tonnes on a boat, the transport cost per unit is actually very low. I double-checked this with Fonterra. It confirmed that domestic transport costs are about 1% and international costs are about 3% of the final price. So the transportation costs are marginal and don't have a big impact on the retail pricing. If New Zealand butter is cheaper in international supermarkets than local supermarkets, I'd be looking at the margins being added by the retailer. Ultimately, as I pointed out in a previous column, if we want a product such as butter to be cheaper than the market price then it has to be subsidised by someone. I don't think the Government should be forcing farmers (or any other businesspeople) to charge lower prices than they can get elsewhere. The Government could subsidise the price, of course. But they'd be doing that with taxpayer money. And it raises questions like: why butter? The Greens and Labour occasionally talk about removing GST from some food products, which would be a form of subsidy. But the focus there tends to be healthy fresh produce, which they believe we all need to eat more of. Products such as cheese and butter seem to hold special cultural importance to many Kiwis, given our history as a dairy-producing nation. Perhaps a political party could run on a policy of subsidising them specifically; it might prove popular! Liam Dann is business editor-at-large for the New Zealand Herald. He is a senior writer and columnist, and also presents and produces videos and podcasts. He joined the Herald in 2003. To sign up to his weekly newsletter, click on your user profile at and select 'My newsletters'. For a step-by-step guide, click here. If you have a burning question about the quirks or intricacies of economics, send it to or leave a message in the comments section.
Yahoo
07-04-2025
- Business
- Yahoo
RBNZ to cut rates by 25bps, economists say more cuts possible after U.S. tariffs
By Lucy Craymer WELLINGTON (Reuters) - New Zealand's central bank is expected to cut its official cash rate by 25 basis points to 3.50% on Wednesday and economists say the bank could make more cuts in 2025 as it reacts to U.S. tariffs and their potential global economic fallout. All 31 economists in a Reuters poll expected the Reserve Bank of New Zealand to cut the cash rate by 25 basis points to 3.50% at its Wednesday meeting. The central bank has already cut by 175 basis points since August last year. In February the bank outlined plans to cut the cash rate by 25 basis points in April and May if economic conditions evolved as they expected. But last week, U.S. President Trump announced sweeping tariffs that have shocked markets, threatening a trade war and feeding expectations of a global recession. The U.S., which is New Zealand's second largest export market, hit the country with a 10% tariff. The Pacific Nation has said it will not retaliate. Markets are now expecting the official cash rate to bottom out at 2.75%, compared to 3% in the middle of last week. Bank of New Zealand Head of Research Stephen Toplis said in a note on Tuesday that the best thing that New Zealand's central bank could do was 'keep a steady hand on the tiller,' which meant following through with the 25 basis point cut it had suggested in February. Toplis added, however, that central bank messaging was likely to change given recent events. The RBNZ's is the first central bank to hold a scheduled meeting since Trump announced the tariffs. 'Surely the Bank must acknowledge what is going on now and the uncertainty this brings. In so doing, we would not be surprised if its musings about where to next were left wide open,' Toplis said. New Zealand markets, along with global bourses, have slumped since Trump announced the tariffs. New Zealand's NZX-50 index is down 4.4% since Thursday, while the New Zealand dollar has dropped 4.1% to US$0.5560. Westpac chief economist Kelly Eckhold said volatile markets needed to be monitored in case they created a sustained tightening in financial conditions that fed back into the economic outlook. 'For the RBNZ's part, they will see this as a reason to continue to cut the OCR (official cash rate) and retain an easing bias,' he said in a note. The direct impact of tariffs on New Zealand exports is expected to be limited. However, the RBNZ noted in its February Monetary Policy Statement (MPS) that tariffs would probably lower growth in the country's main trading partners including Australia and China, which would reduce demand for exports, and therefore economic growth in New Zealand over the medium term. Sign in to access your portfolio
Reuters
07-04-2025
- Business
- Reuters
RBNZ to cut rates by 25bps, economists say more cuts possible after U.S. tariffs
Summary New Zealand central bank likely to cut rates by 25bps, leave outlook 'wide open' Tariffs, market volatility good reason to retain easing bias Markets now expecting OCR to bottom out at 2.75%, compared to 3% last week New Zealand could feel impact from slower growth in Australia. China WELLINGTON, April 7 (Reuters) - New Zealand's central bank is expected to cut its official cash rate by 25 basis points to 3.50% on Wednesday and economists say the bank could make more cuts in 2025 as it reacts to U.S. tariffs and their potential global economic fallout. All 31 economists in a Reuters poll expected the Reserve Bank of New Zealand to cut the cash rate by 25 basis points to 3.50% at its Wednesday meeting. The central bank has already cut by 175 basis points since August last year. In February the bank outlined plans to cut the cash rate by 25 basis points in April and May if economic conditions evolved as they expected. But last week, U.S. President Trump announced sweeping tariffs that have shocked markets, threatening a trade war and feeding expectations of a global recession. The U.S., which is New Zealand's second largest export market, hit the country with a 10% tariff. The Pacific Nation has said it will not retaliate. Markets are now expecting the official cash rate to bottom out at 2.75%, compared to 3% in the middle of last week. Bank of New Zealand Head of Research Stephen Toplis said in a note on Tuesday that the best thing that New Zealand's central bank could do was 'keep a steady hand on the tiller,' which meant following through with the 25 basis point cut it had suggested in February. Toplis added, however, that central bank messaging was likely to change given recent events. The RBNZ's is the first central bank to hold a scheduled meeting since Trump announced the tariffs. 'Surely the Bank must acknowledge what is going on now and the uncertainty this brings. In so doing, we would not be surprised if its musings about where to next were left wide open,' Toplis said. New Zealand markets, along with global bourses, have slumped since Trump announced the tariffs. New Zealand's NZX-50 index is down 4.4% since Thursday, while the New Zealand dollar has dropped 4.1% to US$0.5560. Westpac chief economist Kelly Eckhold said volatile markets needed to be monitored in case they created a sustained tightening in financial conditions that fed back into the economic outlook. 'For the RBNZ's part, they will see this as a reason to continue to cut the OCR (official cash rate) and retain an easing bias,' he said in a note. The direct impact of tariffs on New Zealand exports is expected to be limited. However, the RBNZ noted in its February Monetary Policy Statement (MPS) that tariffs would probably lower growth in the country's main trading partners including Australia and China, which would reduce demand for exports, and therefore economic growth in New Zealand over the medium term.
