By Alex Tarrant
Lower vegetable and telecommunication prices, as well as Christmas discounting, in the December quarter meant the consumer price index (CPI), a general measure of the prices of goods and services across the economy, fell 0.3% in the quarter from September.
This was against expectations for a rise, with the median expectation of economists surveyed by Reuters for 0.4% quarterly inflation in the December quarter, giving 2.6% annual inflation. The Reserve Bank of New Zealand was also expecting 0.4% and 2.6% for the quarter and year, respectively.
The fall meant annual CPI inflation fell to 1.8%, the lowest level since the September 2010 quarter, and down from 4.6% annual inflation in the September 2011 quarter. December 2011 annual inflation figures were the first to not be affected by the rise in GST from October 1, 2010, which boosted prices by an estimated 2.2%.
The 1.8% annual inflation is well within the Reserve Bank’s medium term 1-3% target band, and will support economist picks that the central bank will be able to leave the Official Cash Rate on hold until at least December this year. The RBNZ’s next OCR review is Thursday next week.
Following the release, economists began to note their expectations for the first hike in the OCR were now skewed to a later start (see their reactions below)
At 11:35am - 50 minutues after the figures were released, the New Zealand dollar had fallen by about half a US cent from 80.70 USc to 80.20 USc.
Vegetables, telecoms, discounting
The main reason for the fall was lower vegetable prices during the three months to December 31, Statistics New Zealand prices manager Chris Pike said.
Vegetable prices fell 25% during the quarter, causing a 2.2% fall in overall food prices.
“The larger-than-usual fall for vegetables reflects a supply shortage in the three months to September,” Pike said.
“Basically, vegetable prices were higher than normal last winter, then fell to normal levels towards the end of the year. If vegetable prices had remained constant in the December 2011 quarter, the CPI would have risen 0.1%,” he said.
Prices were also lower during the December quarter for telecommunication services, furniture, kitchenware, and appliances. These falls were partly countered by rises in international air fares and petrol, Stats NZ said.
“Telecommunication services, the second biggest contributor to the fall in the CPI, was down 3.6%. This reflected higher data caps and lower prices for broadband plans, and lower international calling rates from landline phones,” Pike said.
“The household contents and services group also fell, down 1.5%. This reflected lower prices for furniture, kitchenware, and appliances. There was more discounting in the December 2011 quarter than in the previous three months or in the final quarter of 2010,” Pike said.
The main price rise was for transport, up 1.4% in the December quarter, influenced by international air fares (up 5.8%), petrol (up 0.9%), and second-hand cars (up 1.8%). International air fares generally show seasonal increases in December quarters.
Annually, petrol prices were up 11% in the December quarter from the same quarter in 2010. Also up were cigarettes and tobacco (up 9.4%), housing rentals (up 2.0%), second-hand cars (up 5.1%), and local authority rates (up 4.6%), Stats NZ said.
Housing costs up, veges down
The tradable component of the CPI – goods and services that are imported, or local goods and services in competition with imports – fell 0.9% in the December quarter due to the fall in vegetable prices. This was the largest fall in the tradable component since a 2.1% decrease in the December 2008 quarter when petrol prices fell 22%, Stats NZ said.
Lower prices were also recorded for audio-visual and computing equipment, for furniture and furnishings, and for milk, cheese, and eggs. Prices rose for international air fares, petrol, second-hand cars, and package holidays.
The non-tradables component of the CPI – goods and services that do not face foreign competition such as local authority rates – rose 0.2% during the quarter. That was boosted by actual rents for housing, property maintenance services, and purchase of new housing.
The most significant downward contributor to the non-tradable component came from lower prices for telecommunication services, Stats NZ said.
‘General weakness’
Trimmed mean measures, which exclude extreme price rises and falls, recorded quarterly rises ranging from 0.1% for the lowest trim of five percent, and 0.3% for the highest trim of 30 percent.
These measures reinforced the picture of general weakness in the CPI in the December quarter, Stats NZ said.
Economist reaction
ASB economist Christina Leung:
The 0.3% decline in CPI over Q4 was much weaker than our, RBNZ and market expectations. In particular, the subdued 0.2% increase in non-tradable inflation was much weaker than expected. While part of this was due to one-off factors such as a decline in telecommunications prices reflecting cheaper calling and internet plans, other downside surprises suggest little sign of inflation pressures in the NZ economy.
In particular, construction costs increased only 0.4% over Q4. We had expected some pick-up in construction cost inflation in light of emerging signs of capacity pressures in the building sector in Canterbury. However, with post-earthquake rebuilding activity yet to pick up to any meaningful degree, there appears little risk of an acceleration in construction cost inflation in the short term.
As expected, the decline in tradable inflation was driven by a fall in food prices over Q4. Nevertheless, tradable inflation was weaker than expected, reflecting subdued demand in the retail sector. While the high NZ dollar over the second half of 2011 has allowed retailers to discount the price of big-ticket items such as furniture and electronic goods, the extent of price declines in these items over Q4 is greater than what the recent currency movements would suggest. Weaker household demand also meant the prices of package holidays and accommodation, which is typically strong in Q4, remain subdued.
Implications:
The CPI showed broad-based softening in inflation, even putting aside a couple of one-off utility price decreases. The relatively broad-based nature of muted inflation suggests very little for the RBNZ to start worrying about on the inflation front. In particular, the weak extent of construction-related inflation in the second half of 2011 highlights that the bow wave of earthquake rebuild inflation has yet to appear.
The mild extent of recent inflation combines with the likelihood that crisis resolution in Europe will take time and that the rebuild ofChristchurch risks being set back by the recent earthquakes. We still expect the RBNZ will wait until December before gradually lifting the OCR but the risks are skewed to a later start – particularly if reconstruction looks like it will be delayed from our expectations of a mid-year start.
Westpac's Dominick Stephens and Michael Gordon:
Implications
The December quarter CPI painted a very benign picture of inflation pressures at this point in time. The lingering impact of the strong New Zealand dollar and the economy's spare capacity is keeping retail price inflation down, and at this stage there is little evidence of inflation pressures stemming from a tighter housing market. We expect annual inflation to remain in the lower half of the 1-3% target band through most of 2012 – allowing the Reserve Bank to push out its projections for rate hikes to resume in June.
Details
Consumer prices fell 0.3% in the December quarter, below our pick for a flat outturn and well below the median market forecast of a 0.4% rise. The main negative contributors were an unusually large seasonal drop in food prices (-2.2%, as already detailed in the monthly food price index) and another sharp drop in telecommunication prices beyond what we had estimated.Relative to our forecasts, the downside surprises were modest but widespread, with two noticeable themes. The first was generally weak inflation in some of the more import-heavy retail categories, reflecting the legacy of the strong NZ dollar and weak pricing power among retailers - tradables prices were down 0.9% for the quarter and up just 1.1% on a year ago. Apparel prices fell 0.3%, household contents and services fell 1.5%, and recreational and cultural equipment rose just 0.1%. Stats NZ noted a higher degree of discounting in these groups compared to a year ago.
The second theme was a distinct lack of inflation pressures emanating from the housing market at the moment. This is not entirely surprising - we would expect the inflationary effects of the reconstruction of Christchurch to be drawn out over several years, not months - though there were was some upward pressure on prices in the first half of last year, which seems to have dissipated since. Rents were up 0.4%, new house prices rose 0.4%, and property maintenance materials were flat.
Market reaction
The NZD fell 40pts and the two-year swap rate fell 8 basis points. The RBNZ will take comfort from another low inflation outturn, though the surprise for them was entirely on the tradables side rather than the stickier non-tradables components. The December MPS projected rate hikes from around June this year; our current pick is for a September start, and today's result increases the chance that we push this timing out further.
(Updates with NZ$ fall, ASB, Westpac reaction)
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112 Comments
"and local authority rates (up 4.6%),"...isn't it great to know the make work mob are hard at it splurging away every day...drove past Blenheims new credit financed high rise parking building yesterday...plenty of empty spaces...I wonder if special deals are being cut to fill the place and make it look good...
.......your not alone....Hamilton too has such a wonderful visionary Council...$7.9 Mill for a carpark the largely sits idle...read on...
General manager Works and Services Sally Davis says the Knox Street commuter car-park is the first tangible project to be delivered under the Access Hamilton strategy.
"In our recent Annual Residents Survey, car-parking was the fifth most important issue that our community wants Council to address. The Knox Street car-parking building will help to alleviate the pressure for adequate commuter car-parking in the central city. While one of Access Hamilton's aims is to encourage Hamiltonians to use alternative modes of transport to the car, Council is committed to balancing this with the need to provide sufficient commuter car-parking within the city."
I believe its a joint venture...no doubt gains privatised, losses to ratepayers...Redman and Maryatt can probabaly tell yer.....
Looking what’s build/ constructed/ maintained on infrastructure throughout the country, I see a lot of unproductive, worthless investments. I personally think it is just keeping the NZworkforce working – ending up in a very expensive exercise for tax- and ratepayers.
Where are the decent, productive jobs - helping to reduce our account deficit PM ?
....and who pays for all the infrastructure PM, you constantly import - made by foreign workforces, with a reduced revenue stream in the next years ?
Kunst - you're right. There were a lot of 'keep the ball in play' moves, not the least down here, was the Dunedin Stadium, seeded by 15 million of Govt money, run by the boys for the boys, nudge nudge wink wink. The ultimate insult was that Key and Co gave the ringleader a gong for 'services to community'.
Should have read: services to a small cabal, at the expense of the community.
Without getting angry about it, I guess we have to acknowledge that a system going over the peak, was always going to throw a last throw, and it was always going to be not-underwritable.
All Govts, all local Govts, all banks, all long-term borowers, and all those downstream of them, are in trouble. Getting investment or seed/startup money has to become harder too.
I have been on the phone to someone from the Environment and Sustainability Forum for the Auckland City Council today, spurred on by the article in the Herald about wood fires.
You would think that a cheap device to fit to older wood burners would be of interest. She didn't even take my name. They are a bloody joke.
Didn't see the article but some time ago tried to find out how to ger an second hand wood fire certified as accetable if it was modified to new regs. Answer: No one has thought of that - couldn't tell me how it could be done. Hence, second hand good wood fires being dumped..
As an aside, know of person who has installed the new ones and then removed the dampener so they can supprees the burn rate. As I understand it, the differecne between the new one's and the old one's is the new one's cannot be shut down to smoulder levels.
Might be wrong, I beleive that is the only difference ..small piece of metal welded in to stop shutting down fire to far. Easily ground out again if u want fire to last all night...
Well rastus that certainly was the case when the higher emission standard came out, but I doubt anything produced in the last 3-4 years is as simply modified. To be honest you are putting your health as serious risk, as Wolly says. The particulates that are emitted when inefficiently burning ie when you turn it down low, are small enough to pass through most window seals. Even in rural areas you are at risk from respiratory disorders.
But you are right on the money about modifying to meet the new regulations. The twat the wrote the regs never conceived that older stoves could be brought up to standard. We actually have a situation where a whole ministry department, along with numerous council employees, are charged with improving emission standards but are instead acting as an impediment.
Wally - listen very carefully.
There is an energy-supply problem on this wee planet.
We are down to deep-water, fracking, and - so help us - lignite.
Energy does all the work - the real work, we expect.
It follows that the services will get 'more expensive' (if that's the measure you wish to use) compared to 'incomes', which of course are energy-reliant.
That will be an exponential gap-widening, and folk like myself have been explaining why it must be, here, for some time.
Why the continued non-comprende?
Indeed plenty of planets out there to pillage, but we have to get there first. Sadly, space exploration, given that it's REQUIRED if we are to avoid peak... eveything, is given such a low priority that we may never get off of this planet.
Sure, human kind is still investing in exploration now, but as turmoil and unrest in the world increases space exploration will only decrease. One day we'll we'll look up at the sky and realise that the opportunity has passed with no hope of getting off this rock.
What'll we do when we've reached " Peak Planets " , when we've pillaged more than 50 % of the known and trillions of unknown planets out there ....... can we reach " Peak Planet " if astronomers haven't discovered them all yet ?
........ it's kind of like " Peak Oil " ..... isn't it !
Indeed the idea is the same, and applies in many situations. At some point, if a civilisation were to expand past their home planet there would be a peak rate of planetary plunder reached before new discoveries started to fall off. Even a simple and "completely irrelivant" TV show like Star Trek shows initial expansion (the original series), and later, past the peak (next generation) where expansion has been curbed by running into other species.
The raspberry plant in the back yard also exhibits peaking behaviour. At some point the rate of production reaches a peak, then fewer and fewer berries each day.
The professional athlete is the same, getting better and better until they peak, then they're no longer getting better but worse and finally relent and are called "over the hill" (hehe).
So many examples from day to day life. Peak oil is just another example.
Iconoclast - no, we're very different. Note what 'Wally' sounded like, pre-election.
A backer of the status-quo. He says he's an investor "I'm a millionaire" as I recall.
Again, an outlook which requires the status-quo to prevail.
I'm guessing he's had trouble with both banks, and local authorities, but they are only the front to the underlying problems he faces.
Limits to growth within a finite space, require rules, sooner or later, and also suggest a non-growth second-half.
No amount of CEO wage reduction, watersiders wage reduction, rates reduction or bank lending reduction, can actually save a syatem requiring growth.
Think it through.
So Wally is targeting the wrong target. He'll get his wish, though - there will be a lot less tar-get in the future. Much of it will revert to gravel.....
I do understand what your point is PDK...and it's all the more a fact of life with the human pop set to top 8 billion in less than 9 years...then 9 billion in 8...then 10 in 7 ....
Either we have us one hell of wing ding virus that wipes out a few billion...or a big fat extinction event....or we find a short cut to pillage another planet...
And no I do not have trouble with banks...or council...but that don't stop me from booting them.
As for ending the bloated public sector salaries with bonuses..either some real controls are put in place or the system will fall over.
Interesting notion .. Wolly, your oblique reference to "downsizing" the population is reminiscent of a post by PDK a week or two ago which produced a damming response from GBH, who misread what he was saying .. so in the interests of "fair and balanced" you should now expect a similar whack.
Some people on this site are no doubt fans?
http://blogs.independent.co.uk/2012/01/16/it%E2%80%99s-a-girl-the-three…
I merely suggested to PDK that he set an example , show us how its done , by euthanising a few of his family & friends , perhaps even himself ...... the ultimate sacrifice so that others may live ...... and that he sign up himself & everyone he knows for sterilization ........
..... the rest of us will observe , watch proceedings , moniter the situation , take notes , eat some scallops ....... and if we think that PDK is onto a winner , we'll follow his lead .....
Gummy can't be fairer than that !
Downsizing the population and Malthus and HugeOne and GBH
I know the written word is one of the most difficult forms of communication, and PDK is wont to write in a rather dense (compact) manner, like a form of morse code, that invites mis-interpretation to the point where HugeOne accuses PDK of being a Malthusian Luddite .. well .. this is my understanding of what PDK said .. (and I might well be totally wrong)
Back around 1800 Robert Malthus stated that population growth would be contained or restrained by its ability to produce food to sustain it, or population growth would outstrip the supply of food, which would act as a brake.
But Malthus didnt count on John D Rockefeller arriving on the scene in the mid-1800s and mass-producing oil and subsequent downstream petro-chemical based fertilisers which have underpinned the doubling of global population, and doubling of the food-supply-chain. OK so far?
All PDK did was to ask the question "what happens when the oil runs out"? Will it downsize the food-supply (of course it will), and consequentially downsize global population
..... who says the oil will run out ? ...... we may progress from fossil fuels , long before they run out ..... the Malthusians extrapolate the future as a straight-line , from past history ..... ignoring scientific research & technological break-throughs . Last time I'd heard tell , the patent office is still mighty busy ! ...... I'm on HughP's side when it comes to despairing of the gloomsterationalysing Malthusian-Luddites around here ........
If mammary serves , PDK advocated population controls ...... and if you do a little search , you'll see how appalling they've been administered in the past ..... you're sliding down the Orwellian slope of " Big Brother " when you allow bureaucrats to decree population controls ..
..... my response to PDK , who wants this outcome : You first !
Tut tut .......my good man there are far more deserving in need of removal than our very own PDK....in the bigger scheme of things I believe he is correct in his thinking about population for the sake of population..... the demands placed upon this spinning orb we rape and pillage as our own ...... sooner or later it comes down to the rat in a cage syndrome......
In terms of poplation control by big brother it is of course the most unlikely scenario because big brother is, in fact ,hell bent on growth and cannot see past the numbers in terms of %tages .
Every man has a responsibility( I believe) to at least consider the probable number of dependants for which, he can provide an existance ,. that has some kind of quality and dignity in its duration.
There would appear to be no shortage of evidence to say this has not been the case in growth population regions.
I guess the bottom line is always going to be Primal....you F*@& with your dick and have a good think about it later.
Hmmm , you're probably right ..... send Bernard off for a physical " re-alignment " then ?
...... but it was PDK's idea ... fair do he should have the priviledge of being first cab off the rank , as they say .....
I can wait my turn ..... the scallops are ready ...... yum ...
I can clearly now icono...and far into the future...we have nothing to worry about...the supply of fertiliser is limitless soon as we sort out how to freight the Methane back from them moons way out there...maybe plasma drives and Honda robots...are they called Hobots?....think of the steady arrival of monster cans loaded with all that lovely methane...suck it down a tube to a land based station...
Damn and I just bought a gravel quarry. The peasants are rioting because they can't afford petrol - let them drive on av-gas.
Muddle through, smile, wave, hope, and change. I just can't see any real progess on electricity storage, I thought we'd have ultracapacitors by now. Mind you in the 30's they thought we'd have flying cars by now.
What bothers me most on this blog is that most bloggers tell others they are wrong - even stupid, but hardy accept other opinions and join in a valuable debate / discussion or at least come up with better ideas.
I’m also puzzled, why some bloggers all of a sudden change the subjects, although there is an interesting issue running.
Taking sentence out of context, changing the meaning and not answering questions are other ones.
Kunst - you are wrong - even stupid, thinking that. :)
Butterflies are indeed free, and last I checked, those slithy toves were still quite brillig.
Seriously, I find it quite interesting how many things relate back to one thing, if you see what I mean and I don't mean Adam Neave.
I'm just writing an article about land-use and what it will look like, for instance - but without putting energy-constraint into the picture, the projection would be meaningless.
The big question really is this:
if there is too much buying-expectation (money) around, chasing too few items, then the bid is up, and you get inflation. Hard to see $100/barrel oil not doing that to plastics, fertiliser, transport, and therefore to just about everything. Certainly to the built infrastructure our rates pay for. But what if that expectation dried up, even as the supply of essentials dried up? Isn't that stagflation?
And what could ordinary folk - the ones not silly enough to listen to the Gonzo's of this world- do? I suggest that their first move would be to aim for self-sufficiency, which is the same as trying to become less vulnerable, less beholden.
Of those first moves, the easiest and most obvious, is home-grown vegies. We certainly don't visit that section of the supermarket any more. The home grown season is upon us, so the price in the market goes down. If it shows up as more powerful a driver than in the past, maybe the move is bigger that hithertofore.
All things are connected, and Linus may well prove right about the Great Pumpkin at this rate.
pdk - there is no better and simple way to explain the worldwide situation then:
http://www.youtube.com/watch?v=EQqDS9wGsxQ
We all know we are on the road to the cliff, so why not walk - but no - the majority still like to drive with 100km/ h - how stupid !!
Well , of course you're wrong about that Walter ........ though I'm in no fit state to call anyone else " stupid " ........ but that was kind of daft , even from a Kaikourian ...
...... how's the weather there , by-the-by ? ....... had a 39'c corker on Tuesday , here . Nice !
That Swiss guy , Rocher Ferrero , is doing fine in the tennis . ....... but he has a bigger bat than the other team .
....... anyhoo , all the best for Easter , Kunzie .......... ummmm , did that answer your question ?
"The second theme was a distinct lack of inflation pressures emanating from the housing market at the moment."
Thank Bill English for that....nothing like govt gst grab to take the wind out of the peasant sails...well done Bill....raise it again and kill off the little bit of life left in it.
So we compare springs vegetables with winters vegetables, and discover vegetables are cheaper in spring? And instead of comparing the price of a popular internet connection with like in previous years, we calculate the price per Mb. So the internet has been deflationary since it became available, same with computers TV's etc.
You'd think the obvious way, would be to compare the price of apples in December with aplles last December.
OT but I just ate a Nashi pear from Korea, and it didn't taste as good as the smaller ones, but it looked picture perfect. NZ Nashi's are bruised, and banged around, in fact they are so bad we need to import decent ones from Korea.
CPI down, OCR cut makes sense.
The Consumers Price Index has dropped 0.3% in the December quarter and inflation increased by 1.8% year on year, well within the target band. That allows plenty of room for monetary policy that supports exports say the New Zealand Manufacturers and Exporters Association (NZMEA).
NZMEA Chief Executive John Walley says, “With problems continuing in Europe and a weak domestic economy, inflation pressure is likely to remain low for a prolonged period. That means every effort should be made to bring down the exchange rate to support the export sector. That means an Official Cash Rate cut next week and more policy changes over time.”
“The RBNZ has persistently overestimated inflation pressure in the economy; we have been calling for further cuts for some time, now is the time to act.”
“Using the exchange rate to defuse headline inflation caused by the domestic economy is a failed strategy. It is the primary reason for growth in the export sector stalling from 2004 until now. This practice will have to stop at some point if our economy is to rebalance.”
”It is worth noting that tradable inflation went down 0.9% in the December quarter.”
A better strategy for the Reserve Bank would be to:
• Target non-tradeable inflation;
• Use Loan to Value Ratios to control credit volumes; and
• Specify the amount of savings (deposits) banks are required to raise in New Zealand to limit offshore exposure.
“Had this been done 10 years ago debt levels and servicing costs would have been lower even if average interest rates had been higher. Overall the New Zealand economy would now be better balanced with higher wages, more jobs, more savings and better housing affordability,” says Mr Walley.
“With headline inflation dropping there is no reason to hold up interest and exchange rates artificially. We must see a cut from the Reserve Bank next week, and policy changes introduced over time to target inflation in the non-traded sector.”
http://www.realeconomy.co.nz/244-cpi_down_ocr_cut_makes_sense.aspx
Happy New Year all,
Les.
Bollard will need to pace himself on the march to 0%.
ChCh rebuild ain't happening 2012. Probably not 2013. Probably not this decade.
Demolition is aplenty.
Even more modern Moorhouse Ave buildings are virtually being clear felled (plenty of room for extra car yards!).
Insurance payouts will pay back banks.
Owners with full replacement policies and written off buildings are sitting on lotto tickets. Which when they are cashed in, will be the retirement signal for many.
Look forward to a shrunken ChCh and a shrinking NZ.
BTW of interest to Hugh P, we recently had a QS job done for an older residential property that came in at $3,500 per square metre. With prices at that level no one at all will rebuild (the replacement cost is double the pre-earthquake market value of the building plus land and about 7 times the pre-earthquake market value of the building only). Cash please, I'm on my way ...
Seems to be the logical outcome CJ....$3500 sqm is a staggering amount...that's $350,ooo for 100 sqm...a box....a small box....
Why stay when you have been given the one chance to escape with cash in hand....just be warned...there will be sharks aplenty between you and a new house...including the thieving govt.
Look for a solid old place you can reno yourself without feeding the council your cash...my pick is Ashburton....other think Rangiora....
I reckon if chch gets a wet winter they will have some stonking floods.
Chris I must ask about the terms of your insurance contracts. I think you mentioned before that some of your written-off properties you were going to do some repairs to make them lettable, and just pocket the insurance payout. Would that payout be at indemnity value, or (unlikely in my view) replacement cost?
Our insurer (State -am very glad not AMI, have heard many bad things about them) has offered red zoners two options that are not in their policies, if they deem the house a rebuild: 1. Buy an existing house, or 2. Buy a house and land package.
For a long time I wondered why they would do this. Benevolence, or ...? One explanation perhaps is that these two options save the insurer money compared with rebuilding on another site, because items such as consent fees, working drawings, soil test, architects and engineers fees (if reasonably necessary) are additional to the replacement cost. Also, if you buy a house cheaper than replacement cost, you don't get the difference. It also seems quite a few people have forgotten to claim for carpets and drapes - you have to do this before demolition or before selling your red zone land to the Crown, otherwise tough luck..
You are, I think, correct - the big picture for Chch is not so rosy. The problem, I think, is too many vested interests and those in positions of power to make a difference are not prepared to make the tough calls that would be in the long term interests of Chch and Canterbury as a whole. For instance, given that a house built today you would expect to stand for, say, 100 years, shouldn't they be built at least two meters above current mean sea level? Is this a prudent approach or an alarmist one?
Just my 10c worth.
Crooked Thumb, our insurer doesn't want to rebuild on our land right now (mostly green-blue) so they are offering a similar deal to those in the red zone.
We are looking to buy replacement and they will pay the demolition cost in cash and let us either dispose or retain the buildings at our discretion.
I've seen several "as is" sales come on the market recently with quite liveable houses (which the owner received full replacement on).
Of the 8 we have which are confirmed write-offs. With increasing damage only 1 is actually going to be fully lettable with a modest amount of work. Another is partly lettable, 2 others are feasible to fix but will cost a lot (hundreds of thousands), 4 we have given up on, but will keep the buildings standing in the hope we can fix later.
That price was to rebuild a high stud 2 storey 1920s "manor style" house with ornate panelling, grand carved stairway, 7 fireplaces, french tile roof etc. (The price is essentially for 2 buildings on the site, one of which is a more standard construction. For the main house only the rate would work out well over $4,000 a metre (I haven't gone through the QS report in detail to see the split yet to find what the exact number for just the main house is).
Of course it's possible to build something ordinary for well under half of that.
It's all a question of whether we want to live in fibro boxes or something decent.
Wolly. Dont be lazy. Simple solution. Make your own. Trawl round all the fish'n'chip shops and collect their old cooking oil, load it into a 44-gallon drum, stir in a measured amount of caustic soda, stir, dont shake, and wait. Some time later you have diesel. I know a bloke who runs his mercedes benz on the stuff.
Inflation under control? Utter rot. The local council will soon sort that out.
2004/5 Annual rates $7700
2009/10 Annual rates $12700
2011/12 Annual rates $17600
Same building, no improvements bar a coat of paint and fixing the leaks.
Nelson City Council seem to think every small business is ripe for the squeezing and every small shopkeeper is fair game.
The effect of the rating changes (thanks to Aunty Helen a few years ago now) which allowed councils to charge small flats or areas of individual occupation at the same rate as a separately titled house, unit or building, combined with the huge increases in fixed charges per unit, then it becomes understandable why hundreds of properties are uneconomic to maintain as is.
The end result is the reduction in supply of small, individual cheap units and flats (another arrow aimed squarely at affordability!).
An example of ours is a 4 flat conversion in Timaru. Rents were about $75pw average. Rates went up to approaching $5,000PA. So with a vacancy rate (and associated high turnover of tenants) the rents were lucky to be $12000PA.
So the solution was to rip out 3 kitchens.
Rates are now $1500PA. Rent is about the same for it as a 5 bedroom house as 4 flats, but easier to manage to better tenants.
The outcome is less affordable accomodation, but Government aren't concerned with that sort of thing, are they?
We have another 4 flat conversion in Dunedin (4 small 2bds that only rent at about $110-120pw each). With rates now over $5,000PA we are thinking that it might make sense to change it to multiple bedrooms, which would perversely only attract rates of about $2,000PA but would probably attract more rent (albeit requiring more work) and also would also mean that the property housed more people (ie more services being used despite the significantly lower rates).
ChrisJ - maybe you should do Scarfies brain test :)
Aunty Helen was reacting to parameters outside her control.
Growth - whicjh has to be had for the system which supports you to continue - was going through yet another 'doubling time'. What happens (even if you cling to the thought that small percentages are linear, which seems to be your case) is that the most recent doubling, is equal to all that has gone before. This last one crossed the peak supply of several finite items - gold, copper, almost anything ending in 'ium' - but the key was the fossil energy which drives us.
She had no choice, no local or central authority does; infrastructure costs will permamently outpace incomes, and are doing so. A confusing issue was the arrogance and complexity of our buildings, which in turn required more bureaucracy to police/monitor - leaky homes et al, but the main problem is that things will never get 'cheaper'.
I suggest you read the link I've put lower down the thread - then read all of his posts. He's an astrophysicist, and I don't think he shares your blythe "we haven't scratched the surface".
Global food prices declined in December, but the overall annual average was the highest ever on record, the United Nations Food and Agriculture Organization (FAO) reported today.
Last month, FAO’s Food Price Index level was 211 points – 27 points below its peak in February. The decline was driven by sharp falls in the international prices of cereals, sugar and oils due to a productive harvest coupled with a slowing demand and a stronger United States dollar.
However, despite the steady decline in prices during the second half of the year, the Index overall averaged 228 points in 2011 – the highest average since FAO started measuring international food prices in 1990. The second highest average occurred in 2008 at 200 points.
http://www.un.org/apps/news/story.asp?NewsID=40925&Cr=food&Cr1=prices
Also, to put this in context, there are actually several schools of economics and they disagree about nearly everything. This includes the way banks work in the real world, what motivates spending in the real world. The main stream school is called the neo-classical school and their theories are used by groups like the IMF, and various reserve banks.
The neo-classical school also appears to teach in a very dishonest way, the text books gloss over various high level results, which complicate the narrative (for example a result called the Sonnenschein-Mantel-Debreu theorem is typically ignored)
http://en.wikipedia.org/wiki/Sonnenschein%E2%80%93Mantel%E2%80%93Debreu_theorem
The key result of this theory is that supply and demand curves which might have some shape for an individual, can still take any shape even for a market made up of such individuals. But the text books gloss over this fact, presumably in the assumption that the theory can be repaired some how and so the text book just explains what will apparantly eventually be proven to be true, as if it is already known to be true.
This is also the reason DSGE models are often built on the assumption that there is exactly one individual in the economy, with a job, who elects the government, and makes their decisions, and he pays tax, which he also spends...
The very fact there exist fundamental differences of opinion, in large schools, should make one pretty suspicious of this stuff.
What they don't teach you in economics .. (if they did .. economists would avoid making fools of themselves) in any compound activity .. or compund product .. or compound process .. if you take 5 components, and using one, there are 5 alternatives. Using the same 5 components and this time using any 2 together there are 32 possible combinations. With 20 components the possible combinations (or outcomes) exceed 1 million ... and then think about all the possible ingredients/components/activities that make up an economy ... and then change the quantum of just one of them and then work out the revised possible number of outcomes.
I don't agree, there are ways of aggregating which make reasonable sense given the scale of the problem. Your analogy would equally apply to mechanics and particle physics or even chemistry and particle physics, but chemists don't just throw their hands up in the air and give up.
But the theory is in a bad shape because of some rather foolish assumptions and a lack of theoretical grounding in the real world.
And I was trying to be helpful ... are you an economist? ... have you studied probability? ... have you studied statistical probability? ... have you studied behavioural probability? ... do you understand the difference between the two? ... have you studied Carl Gustav Jung's thesis on the probability of human behaviour given changing conditions and or circumstances ... and how Smith's thesis states an economy is comprised of sum of the behaviours of the members of society and how those members respond to (Jungs) changing circumstances .. change some of the circumstances, and what are the possible permutations ... I guess not ...
I don't think you need to be offended that I disagree with you. Especially if you agree with my point, economics theory could probably be repaired but you need to look at what is wrong with the theory, why it periodically has no clue whats going on. Prior to the crisis it was announced by many the total success of neo-classical macro-economics so it appears to work some of the time at least.
I am more than qualified enough to comment on the internet about this.
The human condition is always the variable Mon Ami ....the one that confounds Bernard and all who can't see past the numbers in a prediction scenario.
I'm uh...away quite a bit a the mo, and missing the usual suspects...wish I could get here more and don't really know why.
Hope your well n Happy....oh!, and the happiest of a New Year to you....stay well.
Hullo Count : New Years greetings ....... you sound slightly frazzled ...... hard day at the office , grindstone to the nose & all that marlarky ?
......... wondered where you been at . Walter's had another mad attack , and only you seem capable of calming the lad down ......
Some insensitive clod suggested that he kill all the whales at Kaikoura , butcher them , and put gherkins on his whale-meat steak .... he's most upset about that , ... apparently gherkins give him wind !
I suggest going through Steve Keens site if you are interested in this kind of thing. He has a nice series of online lectures (he is an economics professor) where he points out the many flaws with economics theory, including theory behind for example DSGE models used by most reserve banks.
http://www.debtdeflation.com/blog/
No I haven't read that one Matt. I think it might be a bit of a fad actually, e.g based on the premise and context that the GFC was caused by an un-anticipated coincidence of extremely unlikely events. If you look through Steves site you will probably conclude that there was pleanty of evidence, and Steve has been around for a long time. Thats based on other statements about the book however, I have not read it. Maybe I should to see if thats what it is about.
I heard him on National Radio a wee while back.
He didn't seen to get it.
This is about the limits to growth, this time around. We've hit the ceiling. Does Keen get that?
I think the flaw is that he's an economist.
http://physics.ucsd.edu/do-the-math/2011/12/the-future-needs-an-attitude-adjustment/
That's an astrophysicist Prof. Not an economist.
so this recent quote from him is keen not getting it?
"I have said nothing here about Global Warming and Peak Oil. Clearly these factors will shape the post-Great Contraction world far more powerfully than would my reforms. The reasons for not mentioning them include specialisation—I am an economist after all, not a specialist on the climate or energy—and the fact that these issues will ultimately make the financial crisis look trivial by comparison. Discussing them while discussing the financial crisis would have swamped the latter topic almost entirely."
From http://www.debtdeflation.com/blogs/2012/01/03/the-debtwatch-manifesto/
Sign me up for your 'doesn't get it list'. I agree that running out of new oil would be a massive shock to the economy, but I think that oil reserves will cushion the initial impact of this. I also think there is probably enough oil above ground to cause catastrophic climate change (thats the worse end of the predictions, near to 5 degrees) because indications are there are about 5-10 years left to take climate change seriously. I think there is enough reserves to cover that period. Anyway I don't know why you worry about peak oil so much, its not like there is much to think about if it runs out, except maybe I wish we hadn't used it all up.
I have yet to see any reason that the financial system needs oil to create more money or implement financial and economic reforms so no, I don't see any connection between oil and the financial crisis. I think that this would be Steve Keens position as well. You might need oil to grow the real economy, but it should be pretty obvious that the financial economy is not attached to the real economy very effectively. To me this makes statements like energy backs currency a bit too much of a stretch in logic.
Keen is seeking a financial system which doesn't depend on growth in the real economy to function normally. This would probably be a good thing, because it would mean that certain policies could be implemented by politicians without them having to inflict a depression onto their constituents.
Gibber - I stand corrected. Thank you. It begs the question asthe why Nat Radio didn't ask the big one, though. Sems a bit out of proportion, discussing finance when the real wave is about to break.
Nic - "I don't see any connection between oil and the financial crisis. I think that this would be Steve Keens position as well".
Gibber has answered you second, I'll answer your first.
Bullet point 1. All money is issued as debt. At any one time, what, perhaps 10% of what is floating round is related directly to existing collateral? ( real ability-to-produce collateral, not inflated value of).
BP2.- all money expects, eventually, to buy goods and/or services. (It's why taxing them actually makes most sense, Wally's on the wrong track there).
BP3. Goods/services require energy, to do the work of making/supplying them. You can get more efficient at doing this, but that gain maxes out somewhere between where you are, and 100%. (technological gains are included in 'efficiencies').
so - max the energy in grunt vs time terms, (you have to understand EROEI, and perhaps the Expoer Land Model) and you've maxed the money-underwrite, but the expectation is in overshoot, at that point, by the levered amount.
So - pension funds collapse, kiwisaver funds reverse, finance co's collapse, real estate prices (have to) reverse, and ultimately (it's often socialised Govt debt by this time) you get defaults. Have to.
There is a direct correlation between energy, and the 'money' that is truly underwritable. My guess (I'm not an economist, my specialty is energy efficiency) is that there will always, now, be too much 'money' around, on the way down the gaussian slope. So I expect inflation (via a bidding war), until such time as the issuance matches the underwrite.
Future economic crisis may result from energy/environment limits, but I think he's saying this isn't the cause of current one - i.e. US lenders onselling risks associated with loans so they no longer had reason to ensure loans they made were sensible as someone else was taking risk of default. Hence growth of market for loans to people who normally wouldn't get a loan to maintain the supply of new loans to package up as subprime ResidentialMortgageBackedSecurities and onsell/speculate with, encouraging housing bubble etc. Not connected to oil.
Bob - sorry, if that's what he's saying, he's wrong.
That growth was part of a system that had to grow. Inevitable, really, considering it was invented in the growth phase of physical extraction. Mathematically, no other format would have worked.
Equally, past peak, it had to fail. Not fit for purpose.
I suspect there are brain-types that don't /won't get it - Scarfie may be on to that.
There's a fellow here, for example, who states "we haven'r even scratched the surface", even as we go deep-sea, fracking, water-cutting, and substituting. Even as a decrepid russian fishing vessel gets into trouble - on the wrong end of the planet, fishing for a fish whose metabolic rate is so cold-induced slow, that it doesn't even breed for the first 10 years. That's not 'hardly scratching the surface'. that's 'mate in three'. End-game stuff.
Ha, ha. Ridiculous. There was a financial crisis in Japan in the 90s, Russia at the fall of the USSR, there were pleanty of other financial crisis before, there was the great depression in 1929. Were they peak oil as well? No ridiculus.
"Inevitable, really, considering it was invented in the growth phase of physical extraction.", what finance? money? banking? cotton was the growth engine of economies when central banks were born. Oil was not even interesting at that time. Again, ridiculous.
Use the permanant marker on your 'doesn't get it' list.
Thanks, bob for actually reading.
Mist - I'll play your nonsense with a straight bat.
You tax the produced, not the potential.
And the easiest way to do that, is a GST, no?
T'is true, the ideal would be to tax per kilojoule, or better perhaps per kilocalorie, but it would take more energy to monitor.......
:)
"So - pension funds collapse, kiwisaver funds reverse, finance co's collapse, real estate prices (have to) reverse, and ultimately (it's often socialised Govt debt by this time) you get defaults. Have to.
There is a direct correlation between energy, and the 'money' that is truly underwritable. My guess (I'm not an economist, my specialty is energy efficiency) is that there will always, now, be too much 'money' around, on the way down the gaussian slope."
You realise that debt based money is liquidated when defaults occur, and not only the finance sector will collapse in an oil shock. Using your 'fantastic' reasoning one could equally conclude that an oil shock will result in too little money. Well the one thing you can't have is both too much and too little money in existence at once.
I wish I understood how money supply worked and it would be nice if it was as simple as you appear to be indicating. I know there's all sorts of different classifications of money that does different stuff. I don't think your BP2 is correct as some types of money (like most of it) has no interest in buying goods/services.
Bob - that misunderstanding is what got us to where we are. It's the kind on nonsense that goes like this: I'll buy a paddock, get it zoned residential, subdivide it, and flog it off.
Then I'll sell the sections for squillions, and I'll be rich.
Sound good so far?
What, exactly, did I do, to earn all those dollars now in my pocket? The ones I can now go out and buy goods and services with? Where did they come from?
They were issued, probably as debt via a bank to the folk who 'bought' my sections.
I haven't done anything so far. The land is still the land. But - some central bank issued the dollars at the stroke of a pen, and I can now go and 'spend' them. Worse, the person who 'bought' the section, has to 'pay' the bank a percentage for the priveledge of 'borrowing' the money which didn't exist until that pen-stroke. The bank shareholders/workers, then expect to 'spend' that on goods and services.
See the problem? The system has to get bigger each go-round, by the amount charged in bank interest, and my profit. Yet it expects to purchase goods and services in bigger amounts, each time the 'created' money wants to find a home.
If you managed to rezone a paddock to residential you haven't done nothing - you would have worked full time for months, paid numerous consultants, taken an enourmous gamble, been to hearings and in most cases made a loss...
... anyway what you say makes perfect sense but you're talking about narrow definition of money supply currency, M1 - M2, whereas widest M3 is way bigger and isn't money that ends up in peoples pockets looking for goods and services (like RB repos to increase/decrease liquidity - whatever that means). That's the part of it I don't understand.
Bob- not my classification of work, sorry. Your activities were entirely parasitic, as were the consultants, a gamble is totally irrelevant, and unless you are accounting properly, your valuing of loss is irrelevant too. The parasitism is on the future income-ability of the purchasers. They - and you - may not be holding the parcel when the music stops, but someone will.
M1,2 and 3 are economists descriptions of the supply of spend - central banks to banks to borrower.
That's irrelevant. It is enough to know that the amount of expected 'buy' in existence at any one time, is more than has currently been bought/supplied. The difference is expected to be supplied by the future, in the future, and at ever-greater amounts. At some stage - and doubling-time says that it was going to be a surprise - that has to cease.
Given that the issued money was debt, the point at which it failed to be able to find a home meant it was doomed to continue being debt. There was an extend-and-pretend process where we all inflated the 'value' of existing things (from real estate to collectible art) but that just made the correction steeper when it happened.
The Fed is as-near-as-dammit at zero%. That's where everyone else is headed too - but it won't be enough, because we're on the way down, underwrite-wise. You see, banks were entirely parasitic too....
I remain unconvinced that consultants involved with land subdivision are just 'parasites' contributing nothing.
When one purchases part of a larger property surely one prefers a survey? Or are you advocating do it yourself surveying on back of envelopes so you don't really know where your boundaries are and can have law suits in perpetuity with stroppy neighbours? How about about dodgy land - does one really want no geotech or the cheapest geotech or to ignore any pointless parasitic geotech advice you do get (like Christchurch). Even planning (which I consider seriously flawed) has merits - stops neighbours building abotoirs, land fills and nuclear power stations against your boundary without due process. How about a subdivision with no parasite consultants to design drainage/sewers or roading? Land subdivision is done in other countries with no parasite consultants involved - Google Dharavi - but outcomes have serious flaws.
Even classifying someone who organises land subdivision as a non-working parasite seems a little harsh. Are you advocating no more new sites for houses in NZ ever? from when? from after you got settled on your subdivided bit, but for no one else? Are you saying there must be no more population increase - forced sterilization or infanticide (banning immigration wouldn't be enough)? or perhaps just forced overcrowding?
I'll play with a straight bat, but only for so long. If you're interested in learning, fine. If I get the feeling - as I am with you - that it's just a status-quo tout taking the mickey, well, there's better things to do, and I'll leave it. OK?
http://en.wikipedia.org/wiki/Work_%28physics%29
Work, in the real sense, requires energy. Goods and/or services, are therefore reliant on energy. Sure, doctors provide a service. But -
In energy terms, that doctor started with eating breakfast (he/she is an energy system). If a raw breakfast, some of the food energy went to digestion, so he had to eat more. If cooked, that 'more' is displaced by the heat energy, typically derived from cracking carbon bonds. If meat, 27 calories of fossil oil went into it (ex the cooking). If vegetable/grain, 10 calories of fossil oil went into it.
He/she presumably drove to 'work'. More fossil fuels. In a vehicle made by, and of, oil. The building was built of materials all manufactured using fossil fuels, and often made from the same resource. Every tool, computer, piece of equipment, will include oil-base plastic.
Every doctor, artist, whatever, expects to 'spend' their 'income' on? Goods and/orservices. Some even think they can 'invest' it, and then expect to buy more goods and or services.
Which we've established, need energy, and nobody who studies energy, seriously suggests ther's a viable in-time alternative.
http://physics.ucsd.edu/do-the-math/
http://questioneverything.typepad.com/
http://www.oilcrisis.com/bartlett/hubbert.htm
www.radionz.co.nz › National › Programmes › Nine To Noon
So the folk who track the rate of flow of energy, are the folk who can tell you how much of a home there is, real-time - for issued-as debt proxy (read: money). They can factor in efficiencies (part of 'productivity, the other being the degree of slave-wagery) but they will never attain 100%, and inevitably start from the percentage they're at.
www.abelard.org/briefings/energy-economics.asp
If energy supply limits what can be done, then it caps what can be 'bought. If you have more issued dollars, then bidding in a scarcity will make things 'more expensive', but measuring the dollar value won't tell you anything about the real limitations. Your doctor, heading into the shops with his 'pay', is totally dependent on someone having supplied some energy.
Perhaps 'dependent' is a better description than 'parasite', but it's a little academic at this point. Most folk - doctors included - seem to expect that they can grow their ability to purchase real things, sometimes by 'investing' debt, sometimes by expecting the ownership of existing representations of spent energy (buidings for instance) to magically return them more buying-power in the future.
Beyond peak energy flow, that expectation - always based on a false grasp of what were the real drivers - is doomed (global average) to a slow reduction of underwrite. The fiscal system will have to change, which probably means a recognition of the reality that growth could not continue in a finite sphere of operations.
Enough, I'm away to play. Being an energy-efficiency buff, I've set up life so there's as little work needed as possible. :)
All that makes sense - I completely agree that exponential growth powered by a limited resource is not sustainable. I agree that every person uses energy to live - a lot from unsustainable sources. Amount of money having no relationship with what can be purchased with that money makes sense.
However as a consultant who works in land subdivision/construction I don't get how I'm 'parasitic'? You mean parasitic on the planet like everyone in which case the best thing we could all do is die, or parasitic on an unsustainable economic system or what? My work (in the career sense) is lobbying for and designing more sustainable, healthier buildings and land uses. I don't get how that is so invalid/parasitic/evil? Surely putting energy (in the effort sense) into designing for sustainable lifestyles is more useful than the 'party now 'cos we all die tomorrow' attitude or the 'it's hopeless let's curl up and die attitude'?
I'll read my copy of http://www.psych.auckland.ac.nz/uoa/home/about/our-staff/academic-staff/niki-harre/psychologyforabetterworld and hopefully find out.
Still trying to get my small brain around money supply. If all NZ money supply is through increase in debt then I would expect a chart showing increase in money supply to be exactly the same (or less than) as a chart showing increase in debt right?
If I photoshop say http://en.wikipedia.org/wiki/File:New_zealand_money_supply_1988-2008.jpg
over http://www.interest.co.nz/charts/economy/overseas-debt (as FR banks other than Kiwibank foreign) then I can see that - yup there's some correlation money supply tracking a bit below debt - well done PDK.
I suggest http://www.positivemoney.org.nz is a good source.
"it should be pretty obvious that the financial economy is not attached to the real economy very effectively"
Yes, pretty obvious that - and also completely wrong. Trouble is we have a debt based money system, money supply (debt) has been growing at double the nominal (and triple the real) growth in the economy for forty years now. The obvious problem - an inability of the real economy to service the bloated finance sector - has been disguised by the money growth itself as well as declining interest rates, globalisation, expanding workforce, cheap oil etc. All of these things are near to or have reached their limits. We have a problem, obviously.
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