News and Opinion, sponsored by RaboPlus

By Roger J Kerr

Market swap interest rates have rallied lower over recent weeks, reflecting the belated re-assessment by the markets about the timing of OCR increases in 2010 from the RBNZ.

Swap yields may struggle to move a great deal lower from here, but do not expect any lift up for several months either.

The market outlook therefore appears very stable over coming months. Therefore, we have some time available to think about wider relationships between economic growth, inflation and short-term interest rates.

These two charts below support the view that 90-day interest rates may not travel much above 5.00% over coming years:-
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There has been an increase of 2.1% for food prices in the January 2010 month, after five months in decline, Statistics New Zealand said today. Prices are up 2.2% from a year ago. (Update 1 includes chart. Update 2 includes economist reaction.)

Significant contributions to the rise in food prices came from higher prices in grocery food, fruit and vegetables, meat, poultry and fish, Stats NZ said. Tomato prices rose 22%, chicken meat prices rose 7.8% and milk prices rose 5.1%, while restaurant meal prices rose just 0.3%.

See the full release below:

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By Roger J Kerr

It never ceases to amaze me that bank economists in New Zealand today continue to prattle on about the inflation risks stemming from retail spending activity as if there is an automatic correlation and direct cause/effect relationship from consumer spending to inflation.

They do not seem to care about the irrefutable evidence over the last seven years in the New Zealand economy that strong consumer demand has not led to the inflation we have experienced.

Never let the facts get in the way of the purist economic theory, which supposedly gets the bank’s name in the business media as some kind of authority on inflation and thus the timing of the next OCR change. (more…)

Prices, as measured by the Consumers Price Index (CPI), fell 0.2% in the December quarter from September, figures released by Statistics New Zealand show. The drop was in line with the Reserve Bank of New Zealand’s forecast and is likely to reinforce the central bank’s view that it can keep the Official Cash Rate on hold at 2.5% until ‘around the middle’ of 2010.

(Update 1 includes Stats NZ comments. Update 2 includes further Stats NZ comments on trimmed mean measures showing underlying price change “quite flat” over December quarter. Update 3 adds economist comments. Update 4 tracks NZ$.)

Economist predictions had centred around a flat CPI during the December quarter, and ranged from of a 0.3% fall to a 0.3% rise. Stats NZ said its trimmed mean measures, which exclude extreme price increases and decreases, recorded quarterly movements ranging from no change to 0.1%. “This indicates that underlying price change for the quarter was quite flat,” Stats NZ said.

The CPI rose 1.3% in the September quarter, 0.6% in June and 0.3% in March. The New Zealand dollar initially fell by around 0.4 USc on the news to 73.5 US cents. Just after midday, the NZ dollar had fallen almost 0.75 USc to 73.25 USc.
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By Roger J Kerr

This Wednesday’s inflation data for the December quarter will be a timely reminder to all and sundry that you do not see much in the way of upwards price pressures coming out of the back-end of an economic recession. Which industries or sectors are in a position to push up prices in an environment of flat and subdued economic demand and get away with it?

They might try, but suffer decreased sales as discerning buyers look for cheaper alternatives.

A number of factors are playing into the low inflation outcome, falling fruit/vegetable prices and the higher NZD allowing for massive discounting on imported consumer goods.

Thankfully we are no longer seeing the usual increases in electricity and local body rates. (more…)

Food prices fell for the fourth consecutive month in November, led by declines in fruit and vegetable prices as better weather increases supply, figures released by Statistics New Zealand show. (Update 1 includes chart.)

Overall prices fell 0.3% over the month, following a 1.5% fall in October, a 0.7% fall in September, and a 0.9% fall in August.

The latest figures take some of the heat out of any inflation pressures, leaving the Reserve Bank with more leeway to leave the Official Cash Rate on hold until the middle of 2010.

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