NZIER is reporting signs that inflationary pressures in the economy are beginning to ease.
The news coming out of the latest in the long-running and influential NZIER Quarterly Survey of Business Opinion (QSBO) suggests easing of capacity pressures in the New Zealand economy while, crucially, the crippling shortages of both skilled and unskilled labour in the country are easing also - albeit slowly.
This news will be a welcome boost for the Reserve Bank (RBNZ), which is attempting to drive down inflation that hit 7.3% as of the June quarter, and which is widely expected to raise the Official Cash rate on Wednesday (October 5) by another 50 basis points to 3.50%.
NZIER's principal economist Christina Leung said the latest survey findings suggest that businesses are still feeling downbeat in the September quarter, but they are also starting to see the light at the end of the tunnel.
"On a seasonally adjusted basis, a net 42% of businesses surveyed expect deterioration in general economic conditions over the coming months – a considerable decrease from the 62% in the June quarter."
Regarding demand in firms’ own business, a net 3% reported an increase in their own trading activity over the September quarter. Demand looks to be stabilising at a lower level, suggesting a period of weaker growth in the New Zealand economy ahead.
On those capacity pressures, Leung said a net 9% of businesses reported capacity as the primary constraint on their business – compared with 13% in the previous quarter.
Labour - or more to the point finding and retaining it - remains the top primary constraint for businesses, with the proportion reporting finding labour as their primary business constraint actually increasing from 37% in the last survey to 43%.
"However, shortages for both skilled and unskilled labour are easing from the historically high levels of the past year," Leung said.
"This suggests wage growth is likely to ease over the coming year, as the reopening of international borders allows more firms to employ workers from overseas."
In the June quarter the unemployment rate as reported by Stats NZ was just 3.3%, while hourly wages in the past year had increased by some 7%.
Leung said that the developments regarding easing labour and capacity pressures are flowing through to moderation in inflation pressures.
"In the September quarter, the proportions of businesses reporting higher costs and raising prices both fell," she said.
"Although the economic outlook is highly uncertain, these results support our view that annual CPI inflation will ease over the coming year."
ASB senior economist Mark Smith said the survey "provided something for both economic hawks and doves".
"There were generally improving signs, although the activity outlook for the second half of the year looks to be weak," he said.
"Experienced and expected prices may have peaked but pressures on profitability, surging costs and the extremely tight labour market highlights the risk of protracted above 3% rates of inflation.
"To counter this, a frontloaded pace of OCR hikes and restrictive monetary settings by the RBNZ is required, with the 50bp hike expected for tomorrow not the last in a sequence of rate hikes needed."
37 Comments
The September 2021 Quarter CPI was 2.2%. The highest quarterly rate in quite a while. That drops out of the annual calculation to be replaced by Q3 2022. I would say the Q3 prices have stabalised. At a high level but stable. So annual inflation will start with a 5 for October announcement. Probably 5.9% for consistency. Once we get to a CPI starting with a 4 in Jan 23 CPI announcement the RBNZ will start pulling back on the stick to get the nose up to try and make the landing a bit less crashy.
Generally agree although I think it will be in the early 5’s in early 2023.
I think by May the annual rate of inflation will be in the mid 3’s, because:
- many of the big wage hikes occurred in April /May this year. I don’t think wage hikes will be that significant next year
- Fuel prices will be similar or slightly down ( and I have factored in the return of the excise)
- Food prices only slightly up
- Construction cost inflation much lower, as building work slumps plus material supplies less constrained
- rent inflation perhaps back to 3% nationally
I also think the USD will start weakening come March/April, assisting with the cost of importation.
Then there is stuff like this. https://www.theguardian.com/world/2022/oct/02/venezuelan-swaps-prisoner…
"While the White House has denied any change in policy towards Venezuela is afoot, the freeing of Americans could create political space for the Biden administration to ease crippling oil sanctions on Venezuela if Maduro shows progress in on-again, off-again talks with his opponents."
Also creates a back door for Iran as well. Iran exports it's crude and condensate to Venezuela and it is blended with heavy Venezuelan crude to make it an exportable grade.
Does Venezuela have the most oil in the world?
Venezuela has the largest amount of oil reserves in the world with more than 300 billion barrels in reserve. Saudi Arabia has the second-largest amount of oil reserves in the world with 297.5 billion barrels. Despite Venezuela's massive supply of natural resources, the country still struggles economically.
There is no sugar coating the labour shortage in this country - the most important point raised in your report should have been highlighted ie
“Labour - or more to the point finding and retaining it - remains the top primary constraint for businesses, with the proportion reporting finding labour as their primary business constraint actually increasing from 37% in the last survey to 43%.”
Has to be the 3rd item from your list that brings inflation down.
Increasing labour supply alone won't ease supply constraints - it will just put a cap on wages for businesses that still see more demand for their products and services than can be fulfilled.
Unless the demand artificially propped up by billions previously pumped into our economy, which produces little of what it consumes, is squeezed out, I don't see a reason for prices to fall back to the target band. Fiscal and/or monetary tightening will certainly choke our debt-fueled economy out.
Labour shortage is just the symptom of this problem rooted in too much money chasing too few goods and services. Bank lending, welfare payments and other government spending programmes and monetary easing have mostly gone straight to the consumption side of the economy.
Even the emissions reduction plan is just a massive subsidy package for consumers and businesses to buy goods and services that are in hot demand globally (electric boilers, heatpumps, EVs, etc.).
Too few goods and services? We've got the most we've ever had in human history. I'd go as far as suggesting that the rapid expansion in goods and services available over the last 30 years as well as the cheap offshore production of it has been the primary deflationary force over the same period. The consumption side of the economy is what keeps it going so I'm not sure what your point is here. It's been the entire intent behind economic growth.
The problem is too much debt and a debt based monetary system combined with greed/fear and ego. Plus the faulty belief that massive gains and price appreciation on property, equities etc equals wealth creation.
We're apparently the wealthiest we've ever been in history but we haven't learnt to share, we haven't learnt to value the 'unskilled', the carer's or the raising of healthy humans. We haven't learnt that trickle down economics is in reality syphon up, and we celebrate it as 'success'. We expect government's, central banks, false prophets/economists to solve the issues because we can't or won't choose to do it ourselves. Why? Are we too divided, too indoctrinated into the competition model, too dumb or simply too afraid?
If you read Christina's report you'll see this as one of the headings "Easing in capacity pressures, but still acute".
also further down "Retailers are the most downbeat" "The sector still faces intense cost pressures, with 95 percent of retailers experiencing higher costs in the September quarter.'
"Weakening pipeline of construction work" is not so good...
"Demand looks to be stabilizing at a lower level, suggesting a period of weaker growth in the New Zealand economy ahead."
"Government construction work remains positive." I agree, however, a change of govt may impact this area significantly.
I think for myself the use of the word acute is key here, and I doubt it was used without careful consideration. I appreciate the objectivity of the report too, although I am always interested in each author's opinion as well.
The evidence here may be an early sign that wage growth will moderate. However, with the current decline in the TWI, there is still lots of imported inflation yet to flow into local prices. And that will lead to wage demands by those in a position to do so.
KeithW
Yes, workers are needed to:
- Service the mortgages of landlords
- Pay to fix NZ's crumbling infrastructure
- Repair the infrastructure which was under invested in for 3-5 decades
- Pay for the EXTREMELY bloated public service sector
- Keep accepting NZ dollars while purchasing power is diluted via QE
- Pay for the poorly preforming ministries - all of them?
THEN, buy into one of the most expensive housing markets in the world.
The math doesn't add up. Either housing comes right down OR all the smart people leave the country.. leaving a bunch of dum-dums.
Then the cultured, landed gentry will start leaving the country because who wants to live in a backwater with a bunch of dum-dums?
NZ is such a geriatric retirement village, it's actually a really pathetic country for young people to live.
Love the use of economic terminology such as dum dums. Agree though, they need to keep the skilled people here. Personally I think the main driver would be density and public transport in Auckland, the sheer boredom is what drives most young people away not the economy.
We have a population voting to make it harder for young working people and worse for the economy long term though too much investment going into housing and not into innovative business (ie Labour axing the CGT because lack of voter support). So yes will continue to loose smart people and if they are smart they should be leaving because NZ doesn't give a sh*t about them.
We in NZ have been riding good wave when students, tourists and our cows have been giving us all we wanted to live. We have become so complacent in just living that we have forgot about progressing. We just want to live for today and not worry about the next day. I hope this changes soon and we can at least have another harbor bridge to connect our biggest city.
I have lived in several other countries, and the low quality of public discourse (and very poor quality 4th estate) in this country is one of the things I like least about living here.
There’s plenty of inane stuff in other countries too, but due to larger populations they have at least some quality newspapers etc.
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