Here's our summary of key economic events over the weekend that affect New Zealand, with news that tomorrow's Australian Budget may bring some important positive surprises.
But first up today, global food prices are rising again, up in April for the first time in more than a year. But the driver was a sharp rise in the sugar price due to global supply issues. Meat prices rose marginally, but dairy prices fell in this UN-FAO tracking.
Meanwhile, China's foreign exchange reserves have crept up, now just above US$3.2 tln. But they remain well below their 2021 levels.
The Caixin services PMI came in at the same level as the official services PMI, both measures recording a healthy expansion.
And after nine years of fitful trials, the PBoC is finally getting its digital yuan off the ground. Some provincial governments allow trade in the e-yuan. And now public employees are being paid in e-yuan, direct to their phone wallets. Users can also directly transfer funds just by tapping another phone (even if internet signals or coverage is weak or down). Banks or credit card companies not required for daily transactions?
Singapore's retail activity rose +2.2% in March and a sharp deceleration of the February rate. They will be concerned about that fall away. Given they have inflation running at +5.5% and the retail data is nominal, that suggests real retail activity is down -3.3%.
In the US, their economy unexpectedly added +253,000 jobs in April, beating forecasts of +180,000 and following a downwardly revised +165,000 in March. But these are the headline, seasonally-adjusted numbers. On an actual basis, the month-on-month rise was +892,000. There are now 161 mln people employed in their workforce, a new record high and up +3.1 mln from year-ago levels. 155.3 mln are on employer payrolls and 5.7 mln self-employed in unincorporated businesses. The 'self-employed' level is near a record low over the past decade if you exclude the March-July 2020 pandemic emergency period.
Average weekly earnings rose at a +5.8% annualised rate in April from March. It was an unexpected improvement and is a faster rise than in any month in the past year. The jobless rate dipped to 3.4% and their participation rate is unchanged at 62.6% so there remains plenty of capacity for more improvement.
By any measure this is a strong labour market, confounding the doomsters yet again.
This strong labour market is supporting non-housing consumer credit growth which came in higher in March than expected. Total consumer debt rose +US$26.5 bln from the prior month after an upwardly revised +US$15 bln increase in the previous month and the March levels were well above market expectations of a +US$16.5 bln rise. This data is also not supporting bear scenarios.
None of this data will be welcomed by the Fed. It does not indicate that inflationary pressures will be easing soon from a slowing economy. But a more immediate problem is looming - the inability to get their debt limit fiasco sorted.
Across the border, Canada's labour market delivered a stronger-than-expected result too, adding +41,400 jobs when +20,000 additional were expected. But there was a downside - all those additional jobs were part-time roles. Their jobless rate is hovering near a record low for them.
Like Singapore, the EU is suffering declines in retail activity too, down -1.2% in March from February, down -3.8% from year ago levels. This data is inflation adjusted.
In Germany there has been a very sharp drop in factory orders, led by orders for large engineering products. This has been the biggest drop in industrial orders since the height of the pandemic in April 2020.
In Australia, the RBA's Monetary Policy Review doesn't see inflation returning to its policy range until ... mid-2025. They acknowledge the current 7% inflation is too high but they are in no rush to rock the boat to fix that problem. They seem more worried about weak housing markets than inflation stealing savings. Perhaps they are trying to inflate their household debt away? They seem to have little tolerance for meaningful action on inflation.
Lending for owner-occupied homes in Australia rose +5.5% to A$16 bln in March from February, logging a positive month-on-month gain for the first time in ten months and defying expectations for a -1% decline. Still, March’s figure was -25% lower than for March a year ago.
This past weekend, auction clearance rates were high - above 75% - and listings available for sale low, as their housing markets turn higher. A fast-recovering housing market seriously complicates the RBA's efforts to tackle inflation, but signs of an imminent recession there are not on the horizon.
All eyes in Australia are now on the May 9 (Tuesday) Federal Budget. An earlier return to surplus seems likely as taxes rise sharply from their strong jobs and wages growth. Expectations are high for new initiatives aimed at helping households deal with inflation - while themselves not causing more inflation. Income-targeted subsidies for basic household expenses seem to be how they will do that.
The UST 10yr yield starts today at 3.44%, and unchanged from Saturday and a week ago. Their 2-10 yield curve is unchanged at -48 bps. Their 1-5 curve is little-changed by -137 bps. But their 3 mth-10yr curve is now very much more inverted, now by -203 bps. The Australian 10 year bond yield is now at 3.40% and unchanged from Saturday. The China 10 year bond rate is down at 2.75%. This is actually a six month low and an unusual dip. And the NZ Government 10 year bond rate is now at 4.13%, unchanged in a day but back to week-ago levels.
The price of gold will start today at US$2018/oz and up +US$4 from this time Saturday. A week ago it was at US$1991/oz.
And oil prices have slipped slightly from Saturday to be just over US$71/bbl in the US. The international Brent price is just over US$75/bbl. These are -US$5 lower than week-ago levels.
The Kiwi dollar is holding little-changed against the USD and now at 62.9 USc. Against the Aussie we are marginally softer at 93.3 AUc. Against the euro we are marginally firmer at 57.2 euro cents. That means the TWI-5 is now at 70.6 and unchanged from Saturday but up +70 bps in a week.
The bitcoin price is lower today, now at US$28,949 and down -2.1% from Saturday. Volatility over the past 24 hours has been very low at +/- 0.8%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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83 Comments
I have been a OCR hike bear, but on current data there’s no way the RBNZ should be halting its hiking cycle. There’s absolutely no credibility in not hiking to at least 6%.
6%?
(From a couple of weeks back).New Zealand’s food prices have gone up 12.1% year on year. Fresh food has been affected the most of all, with the biggest increases for fruit and vegetables – up 22% – and grocery items up 14%. Some staples have gone through the roof: eggs are up 63% year on year, and yoghurt is up 21.7%. Pastry products are up 17.6%, poultry 15.2%.
I think if the RBNZ hikes in 25 BP increments over the next 3 meetings, then by that time we will really see the wind come out of the economy’s sails, and inflation really trending down.
Imagine if this just continues to get more and more stagflationary.
Central banks keep raising rates, boomers keep retiring, cost of debt continues to increase, companies keep increasing prices to offset interest expense and input costs, workers (with mortgages) require wage raises to offset interest rate costs, the lack of staff (due to reitirng boomers) keeps labour market tight and unemployment extrememly low, boomers keep spending up large as they start getting 7-10% on their term deposits while mortgage free in retirement.
Its like a whole new world...
(will this happen....probably not, but it is quite possible).
Yep definitely possible. Wouldn’t it be ironic, another bit of good timing for the Boomers.
Don't forget the mass collapse of sharemarkets as Boomers/super start the mass sale of assets, with fewer left to buy.
? It’s the ongoing dividends we like. Note I’m not a boomer. Why sell?
companies keep increasing prices to offset interest expense and input costs
Don't limit that to just companies. Our council is blaming a 12.6% rates increase (on top of last years 12.5% increase) on inflation. And in little old NZ, where so much that you need to purchase is monopolistic, there's nowhere to hide.
Yep. Prices go up because they can make you pay. Not because of cost.
It is a monopolistic economy indeed.
Food prices didn’t rise due to an overheating economy. Eggs increased due to the ban on cages and fruit and veggies due to bad weather. Should we raise interest rates to discourage the poor from eating? While giving the rich $8000 off a Tesla. This country has gone mad.
Pretty much.
Thinking fruit price inflation is demand driven a few months after a cyclone isn't great reasoning.
There has been a world wide shortage of eggs due to avian flu and wheat prices .
Zero to do with the supermarket's "ban on cages" - despite what our redoubtable egg producers claim.
Reinforces my point that it is due to factors other than demand. No need to raise interest rates further as it is the wrong lever to pull in this situation.
It's worse than this. Fruit and veggie prices at my local farmers market have gone up about 10-20% in around 4 years, I know cos I track my spend and can see that far back. We are eating the same food from there as we were before. For 2 people we spend around $60 a week on fruit/veggies and it's basically 75% of our diet.
Supermarket prices however have gone up more like 40-60% from 4 years ago, again we are eating the same food. Here we spend around $100 a week but it only constitutes about 25% of our diet. Take one guess where Stats gets its data for from inflation reporting. It sure as hell isn't the local veggie markets, they simply surf the online websites of the supermarkets and get the prices from there. Countdown is especially bad, every one I go into they have jacked up prices way in excess of what they should be - often 2-5x the price of the farmers market, who are already selling at a profit directly.
Ever since the ComCom and hence government did nothing about the supermarkets except make some recommendations, they have been making absolute bank, raising their prices far in excess of what is needed. I suspect this is the main reason for food inflation - its the supermarkets jamming up prices.
Food prices have gone up due to large increases in input costs: transport, wages, fertilizer, pesticides, insurance - all have increased significantly over the last 12 months due to global inflation on top of some supply constraints due to War (Ukraine was a key exporter of some fertilizer inputs) & lingering covid 19 disruptions.
but sure, blame the eggs.
In fairness, Putin is the cause of the Ukrainian cost impact, and he's clearly a bit of an egg.
only 7000 off a tesla since the rebalanced the scheme
Market professional curve pricing strategies tell a different story.
Just an opinion of course.
Front-Running the Fed Pivot Might Not Work Next Time.Trading-rats are smart and so they realized they didn't need to wait for the Fed to act to reap big gains. Since everyone playing the trading game knows the Fed will pivot dovish once the market swoons, then the trading-rats started front-running the Fed's pivot, buying every swoon based on their supreme confidence that the Fed would soon "save the market" from crashing.
https://www.oftwominds.com/blogmay23/frontrunning-fed5-23.html
Enjoyed this bit:
Should the Fed randomly deliver treats and shocks, the trading-rats will enter a catatonic-schizoid state of nervous breakdown.
I think they should go ahead and deliver the catatonic-schiziod to the rats.
The recent US bank bailout strategy employed tax payers to make all depositors whole.
No restraints employed to reduce this level of price gouging.
The Fed policy error that should worry investors
By abandoning a systemic framework for monetary policy, the central bank has spawned an all-asset speculative bubble
For all the talk about "inflation" being due to a red hot economy, that was never even remotely the case at any point in Europe (or anywhere, for that matter). ECB's level of bank reserves don't correlate with anything in the real economy. At least not directly. Inversely, tho. Link
HM - the RBNZ have done what they said they'd do, many who thought they wouldn't. The full impact of OCR hikes haven't been felt yet, many mortgage holders still to come off low rates later this year. There needs to be time to allow for this, what good is cranking the OCR further - just to smash the 30%+/- of those that hold mortgages?
Sadly, unless we do 'smash the 30%+/- of those that hold mortgages' the impact of what's happens now will be wasted.
We need a complete re-set of the psychology of the residential property market - away from the current model of speculation, and back to home-as-shelter. And as we learned (the hard way) from rural a subsidy reset; an 87 stock market collapse and finance company losses, we don't seem to learn without the stick being used. We ate the carrot and asked for more!
The RBNZ is using the only tool it has - The Stick.
"We need a complete re-set of the psychology of the residential property market - away from the current model of speculation, and back to home-as-shelter." Absolutely! I don't really understand why we lost that attitude. I do understand that under pressure after being screwed by the politicians - repeatedly people had to look to find ways to preserve their savings and/or just be able to save. But the consequences of that have been horrendous for our society and really demonstrates the failure of capitalism and the 'free market' economy theories.
Decades of intergenerational failure are coming home to roost, but no one in politics has a clue how to begin fixing it. They're all far too self-serving.
Property isn't really that free a market in NZ, though too.
At the first sign of hard times, the Reserve Bank said "our worst case scenario is house prices falling" and pumped huge amounts of welfarism into property.
Restrictive zoning has been used to constrict supply, and any attempts to liberalise zoning are strenuously opposed.
We pump $3 billion of landlord rental yield welfare subsidies into property per annum, and house prices subsidies on top of that. We overtax work and undertax - and under police - speculation, incentivising speculation. We changed our CPI measure to enable more monetary welfarism for property. We raided the KiwiSaver retirement scheme to enable younger generations to pay more for property.
Property has not been a free market. It's been a welfare scheme for a few entitled cohorts that received affordable housing from their predecessors.
Not to mention all the ridiculous covenanting going on. People telling their neighbours what they are and aren't allowed to build (driven by the developer trying to entice people into paying more for their sites).
We had a small 72m2 3-bedroom 1-bath build planned around 2013, but couldn't find a site within an hour's drive of work with a covenant restriction less than 120m2. And all the rural land was being snapped up by Auckland land bankers.
Had one promising site where the developers were struggling to sell, even offering finance themselves - but it was a south facing hillside gully in the middle of nowhere with a 180m2 convenant - absolute lunacy.
It might have been in the 70's, but the market shifted with the introduction of Rogernomics, and the fiddling of the pollies.
And recently the subsidising of the landlords has only ever exacerbated the problem.
They're all far too self-serving
The Anglosphere have all overcooked asset speculation and migration in recent decades, which has allowed our economies to move away from first world fundamentals (R&D, upskilling workforce, modernising infrastructure, etc.) towards more domestic consumption and bulk resource trading.
Sad but true. I think land prices are the culprit. If my land value was reduced from 1.3 million back the $100k that we paid for it in 1991 would make absolutely zero difference to our lifestyle but our son could suddenly afford to buy it and get on the property ladder. I can only hope that our current property correction can drag it that low.
Bugger anyone who purchased later aye
Way back there needed to be a clear distinction made between home and house ownership. Kirk’s 1972 Labour government recognised this with the property speculation tax and Muldoon left that in place until into his second term. If you are going to invest into property as a business then as such it should be no different to any other business in regard to, tax, interest rates and depreciation. Regrettably historically instability and unreliability of NZ’s equity investment (think, JBL, RSL, Securitibank, Broadbank) have encouraged NZrs to trust property as a safe haven investment.
So easy to simply blame speculators.... burn them at the stake!
Its no coincidence that Australia , Canada and NZ have extremely high house prices.
They also lead the world in levels of immigration.... excessive immigration.
https://foreignpolicy.com/2018/10/03/australia-the-worlds-first-immigra…
(The cliche... " privatizing profits and socializing losses" .... comes to mind).
AND... we are doing it again... opening the floodgates.
The logic of blaming ,so called, speculators is somewhat myopic thinking.... in my view.
There is a new term floating around....."Ponzi immigration".. The idea that using immigration to solve short term problems only kicks the can further down the road .. It seems that is what NZ has been/is doing.
https://www.theage.com.au/national/victoria/get-us-off-this-migration-g…
As john Key said in 2017.... Under his leadership most of NZ growth was a function of immigration + Debt....... ( House prices being the most obvious manifestation of those things/policies ).
NZ was the second-to-worst in the advanced economies list on non-residential investments per worker in 2019, running at half of what Korean, US and Swiss businesses invest per worker. Canada appeared third from the bottom and the worst was the UK.
while a lot do blame the speculators the real fault lies with the Governments in failing to anticipate the effects of the 'free market'. In other words they all bought into the BS peddled by the US. It's a bit hard to pick on any one small group when they all fell for it. The real fault lies when the markets started to go stupid and they sat on their hands, doing nothing to regulate them.
In fairness, the pecuniary registers suggest a huge amount of property speculators in parliament over the years. Insider trading.
Also, every time anyone in government has suggested trying to address issues there has been rampant opposition from speculators. So the will have a hard time disavowing all responsibility with any credibility.
People keep saying this, but a significant number have already refinanced this year.
Look, I have always had sympathy for the view you have offered, and that has been my own view. But inflation is remaining stubbornly high, and unemployment stubbornly extremely low. Given that and the RBNZ’s core mandates, isn’t the path of least regret to keep hiking?
Maybe. If inflation is heading down (which is a bit of an unknown at the moment), then I’d say the least regret is to not cause a massive recession. Waiting one or two reviews to find out what is really going on could be justified.
'I’d say the least regret is to not cause a massive recession'
Jimbo - a massive recession is caused not by what you do in the terminal stage (i.e. the final few months), but what you have done in the years (or decades prior).
So when people say that raising rates will cause a recession - no, this isn't true!
It was extending too much debt via excessively loose monetary policy that eventually causes the recession.
If we raised rates earlier (limiting the quantity of bad debt that was issued (i.e. reducing risk and severity of recession when it arrived), then the recession would have arrived earlier and it would have been shorter and far less painful.
The more we have attempted to avoid recession at all costs, post GFC, the worse we have making the recession when it eventually arrives.
One of the best comments I have read in a long time. It captures exactly the situation we are in.
The only thing I would add is that, while the main responsible for this mess is clearly the RBNZ, with its shortsighted and utterly moronic ultra-loose monetary policy of recent years, the government also contributed to it with its massive wasteful amount of un-necessary spending directed on ideologically motivated pet projects, rather than on improving the national infrastructure, the country's productivity and its real needs.
Two brilliant comments in a row.
Excellent comments. Thanks.
The loose monetary policy that created this economic mess seems to be a symptom of capitalism (and more specifically the short period election and economic measurement cycles that accompany it in the west).
As with businesses that focus on quarterly and annual results... the leaders and decision makers end up making decisions that wìll ensure their bonus and share prices during the current financial year and financial cycle. But with minimal interest in what happens afterwards.
So orr and robertson did what was needed to win the last election/reappointment and everyone was spending big.. watching their assets grow in value and partying. All was good. I doubt they had no understanding of the consequences just that everyone was pushing for short term results.
The solution is to implement some form of longer term governance body (with some form of voter selected long term vision and strategy) that would sit alongside the government and rbnz and require them to ensure short term policies align with nz longer term economìc goals and vision. The long term vision could be adapteď but not ignored (e.g. migration strategy, infrastraucture investments and kpis, social housing etc...)
China has an advantage here in that the party has a long and short term view and responaibility.
Agreed somewhat, I’ve never been a fan of QE and I wish the RBNZ never tried it. But the damage has been done now, they need to play the cards in front of them even though it’s their fault they have a bad hand. If they need a recession to kill inflation then so be it, but unlike other commentators here I don’t agree that a recession is some kind of good thing.
Long term stability needs to become a focus too, the more they raise now the more they will no doubt drop rates once the fan gets hit, I’d prefer they kept the current rates for longer rather than kill inflation at 8% OCR then drop back to 0% OCR to cure the recession they create.
I'd rather they never dropped rates at all, actually. Set them at a level that appropriately values the future. But as this is a worldwide problem, we can't just do that without having to increase our own industry to reduce our reliance on international trade. We produce more than enough food for our population, we have enough land to shelter them - everything else over and above this is wants rather than needs, and we don't seem to want to produce toys and trinkets for ourselves ( or rather, we want to pay low-wage workers in other countries to do so instead, because we don't value them either).
"I don’t agree that a recession is some kind of good thing"
Jimbo - do you understand the concept of ying and yang and that balance can never be achieved unless you experience both the good and the bad, the light and the dark?
This is true for people, for the seasons, within science, and within the economy.
I think what you say sums up why we are in the predicament that we are. Why?
Because people appear to think that it is possible to only experience the good without the bad (e.g. we can avoid recession and have endless prosperity without any pain).
It is the concept that 'everyone can and should win' and nobody needs to lose.
There is no balance in that. The principles of the universe, that are beyond our control, will cause a recession - and the important thing to note is that the harder we fight to avoid it, the worse that we will make it because the steps we take to avoid recession make the economy even more and more unbalanced. So like ying/yang, to achieve balance we need both the good and the bad. Both times of growth and times of recession.
To believe we can only have good times without the bad is (in my view) quite delusional and shows a mentality of entitlement that simply isn't reasonable.
When you see that we need both times of growth and times of recession you realise that neither is good, nor bad - just that one leads to the other to keep the system balanced - and if you extend one too far in either direction, the opposite will eventually occur in equal severity. So its therefore wise to not to try to be excessively greedy in the good times for example, because that will just result in people being excessively fearful when the system rebalances (which is where we could be heading right now).
In this respect the modern Japanese economy since 1990 is quite balanced. Never booming, never bust. Steady state. Zen.
Do you apply ying and yang to your own economic life? Don't bother working hard because being fired is an inevitable balancing act?
If recession is inevitable and the RBNZ should not try and stop it, why not bump the OCR to 20% tomorrow. Or 100%?
To me it is a balancing act, and if the RBNZ can balance both growth and inflation then they should. If they can't then as I said inflation is the more important battle.
'Do you apply ying and yang to your own economic life? Don't bother working hard because being fired is an inevitable balancing act?'
Are bad things not allowed to happen to good people? Or do you control the universe? My sheer will, will avoid anything bad ever happening to me. I'm sure that is what Jesus, Gandhi, Martin Lurther King, Kennedy brothers were all thinking (lol). It is an immature and limited way of viewing the world.
'I'll just work hard and it will be my neighbour that loses his job in the recession/depression' - sure....but your neighbour thinks the same as you, and works just as hard as you, but one of you will be losing your job. Who is it going to be...you or the neighbour? And who has been treated unjustly by the universe?
Like I point out above - you appear to have the view that you can only have the good without the bad. This isn't how reality works. If the economy is out of balance, a recession will come, and people will lose jobs and if you are in the wrong place at the wrong time it will be you (or me) losing their job.
Everyone should approach life knowing that even if they do work hard, success isn't guaranteed. Things happen that are outside our control. We can improve our odds through effort - I agree on this. But it doesn't give you 100% certainty of success. There are things going on that are bigger than anyone can rationalise. But if you know better - best to change your username to 'god'!
You are not smashing the "30%". you have to take out of that the number of people who already refinanced long, those that have little left to pay etc so the actual numbers are significantly less. Right up until today I still think Orr is protecting home owners, otherwise we would already have double digit mortgage rates.
Orr has to protect the banks not homeowners. There is an OCR level probably not much higher than current where the banks start falling over.
An OCR of 7+ would spell big big trouble for bank business
Nearly every mortgage-holder I know currently has to fold at 8-8.5 mortgage rates (they've been surprisingly open about it, as they rage against Orr for the level of debt they borrowed). Some are already planning on selling (oops, I mean listing) come spring. The banks are in big trouble once this happens.
We're talking to the bank now to get pre-approval, and I have been somewhat surprised at the results so far. Our income is too high for the FHB loans, so the loans we're looking at are 1/4 of the value of our rent due to deposit requirements (looks like we either wait for prices to drop further - we're not in a hurry unless our landlord is forced to sell).
But it makes sense - why would the banks loan on a deposit that will be gone in less than a year? This makes me think this crash has a long way to go yet, as it will keep dropping through the various levels of deposit that people have - and that won't be FHB, because those who do qualify for the low-deposit loans simply don't have the income to afford the interest rates.
I expect some cashed up buyers to jump in at some point, but I would be surprised if there are enough of them to arrest the fall at all (and they likely know that, so they'll hold of for a while too).
What do you mean your income is too high for the FHB loans? DO you mean FHB grants? There are no specific FHB loans in retail banking.
https://www.kiwibank.co.nz/personal-banking/home-loans/getting-a-home-l…
They're very definitely a thing - I have family members who got them.
It wouldn't surprise me if they're not being offered atm, however (as I noted above).
Note - our issue with deposit is about desired location to live, not whether we can buy or not. Happy to keep waiting while prices crash further (deposit's only going up, just mildly chafing at the fact our yearly rent equals 10% equity by itself).
Another way to solve high inflation is to apply targeted immigration policies that open up supply without adding too much pressure to aggregate demand.
Fixing the capital-shallowness of our economy is a longer-term project but allowing accelerated depreciation on smaller investments (<$2m or so) to boost productivity among smaller businesses could work for the time being. Would be worthwhile to exclude Ford Rangers from this tax change.
Big downward revisions to prior months payrolls plus the hours data showing growing contraction.
The April payroll report came out and the topline figure was far from terrible. Some might say it was pretty darn good. As usual, it is the rest of the employment numbers that tell the story. Whatever the payroll figure, there aren't any hours.
Everything is inflationary
'By any measure this is a strong labour market, confounding the doomsters yet again.'
Try counting what that labour is displacing?
https://www.eia.gov/energyexplained/us-energy-facts/
The 'Primary Energy 1950-' graph tells it all.
There is not enough 'labour' to address that; and it'll get worse. But you can hardly call that 'positive'.
Not sure what you mean. Energy doesn’t seem particularly expensive (I think crude was a similar price 14 years ago), so why the need for more labour?
You miss the point entirely.
Society can no longer afford itself. It issues money as debt; that is an expectation that there will be energy in the future, to do stuff to stuff (also expected to be present). There isn't enough future energy (see that graph) to underwrite capex proposals, so we will never see ' expensive' energy. (I though like you in 1008 - I've moved on).
So we pile up ever-more unrepayable debt, yet account energy with that proxy?
The reality is the physical supply graph (that I pointed to). Irrespective of numbers, less work is being done. Labour is mere noise compared to fossil energy, so cannot displace - but is entirely likely to be over-demanded. As we see globally.
Measuring things in $$ terms, from here on in, is to fool ourselves.
As I've been pointing out for some time...
What story does that graph tell you? To me it says that coal is being replaced by gas, nuclear, and renewable, but make no mention of labour.
'Average weekly earnings rose at a +5.8% annualised rate in April from March. It was an unexpected improvement and is a faster rise than in any month in the past year'
Wonder what Powell is thinking about this. More evidence for further rate hikes.
Our emergency housing costs are now over $1mil a day.
That will be after fudging the numbers no doubt because there's thousands of properties now moved to social housing with all of the wrap-around services, security guards, social workers and assorted ticket clippers.
Another problem fixed.
TA aka The Comb release. He was on the OneWoof Property Hour, even TA admits the bottom is a fair way off yet in prices.
Each month I survey about half of my 30,000 subscribers to get insight into whether or not people plan spending more in the coming 3-6 months and on what. I also enquire about the factors motivating their plans to spend more or less. In this month's survey undertaken last week a net 42% of the 670 respondents have said they plan spending less - the second worse result since the survey started in June 2021. People are having to allocate extra money for groceries, they want to pay down debt, their feelings about the future have worsened, expectations for business profitability have deteriorated, and job security has eased a tad. For retailers the results are bad. For the Reserve Bank they will be highly welcomed as they assess the extent of the domestic crunch sought to crush inflation.
TA gone bearish, he will be at risk of being called a DGM if he keeps this up.
He's trying to make the case for a halt to OCR rises. Completely aligned with supporting the housing market
You can consume a lot of popcorn watching the clown show unfold, so I mix it up with Poppadoms. Local indian shop and pak n save all about 15% inflation over the last month..... OCR will go higher imho, NZD will eventually go lower and EVERYTHING will get more expensive just as the country folds.
Prudent individuals and households will have been preparing for this over the past couple of years.
Wage and price spiral is well under way. RBNZ has no option but to keep raising rates, especially as Aussie and the US have just done so after pausing saying it was "all ok" when clearly that is not the case.. The speculative will bluff and bluster and that you should buy now, probably to bail them out, but make your own mind up.
Rates higher for longer - back around to the long term average really.
When the data is so stark, it is surely time to question the casual acceptance of the idea that higher OCR rates = slower increases in prices. Here's what has happened as interest rates leapt up during 2022 (Stats NZ Table SNE250AA):
- Non-financial businesses are now paying an extra $1 billion per month in interest (net of interest received)
- Govt is paying about $150m per month (net) more to holders of Govt bonds and settlement account balances
- Households are now receiving more interest than they pay - by about $300m per month compared to a year ago. Just a few hundred thousand mortgagors are getting hammered hard
- Net outflow of interest to overseas is up by around $250m per month
- Financial Businesses are doing well - making about $350m per month extra in interest
The net impact of all of the above is that consumer demand is falling as households hand over all of their money to the banks, or stash it in term deposits. However, if businesses are facing extra interest costs, why are we so confident that falling demand will lead to prices stabilising or even reducing? When costs are increasing for all market participants and demand for goods and services is falling, does that lead to lower prices? I doubt it.
In terms of stashing money in term deposits - while it reduces the amount of money available for immediate spend (especially on bigger ticket items), conversely it might stimulate spend as savers are comforted by their savings growing by significant amounts?
Yip - one of my theories is that rising interest rates will increase spending by older retired folk who now feel comforted that they are receiving a return on their large pile of cash. (i.e. it becomes inflationary in that part of the market).
Those I've talked to didn't want to spend in 2020-2021 because of how low rates were and how poor their returns were - but now above 5% they're happy to spend because of how much their income has increased.
Have retired extended family with over $500K + in cash/term deposits. They're now receiving an addition $15-20K + a year in income from their TDs but their costs for essentials haven't gone up that much - so they now have a surplus that they're happy to spend.
Exactly.
so maybe there is quite a strong demographic factor at play ie. smaller % of households with mortgages compared to 20 years ago, therefore less impact (in terms of household numbers) of OCR going up. But because the people who do have mortgages have quite big ones on average, the impacts are much more concentrated. But less impactful on an economy-wide basis.
And more people aged over 65, receiving super, and now seeing good returns on term deposits (plus super has been raised)
Yes and also small number of people have a lot of debt and own a lot of properties. So those groups could be who experience the most pain as they are carrying the most interest rate risk.
Well, it is that group who are going to take the rest down. As the fire sales happen, they'll push everyone else with a mortgage's equity down, putting more and more into their same situation. The question is - will those choose to hold, or try to get out by downsizing (particularly the near-retirement empty nesters in shiny new homes)?
I hypothesise you'll see the collapse down through the DTIs, starting with the more the several billion dollar's worth of property bought by owner-occupiers and investors over the last couple of years with a DTI 9+ - and it only accelerates from there.
> Households are now receiving more interest than they pay
> The net impact of all of the above is that consumer demand is falling as households hand over all of their money to the banks,
rather contradictory statements?
Here we go, the corporate welfare is commencing:
https://www.nzherald.co.nz/business/govt-to-backstop-more-stalled-housi…
With the current interest rates, the definition of 'affordable' might need to change.. if I recall it's set by price rather than repayments?
Not to mention the $70 million of socialism announced recently for commercial property owners in the Hawkes Bay. A few folk making sure their "she's a pretty communist" signs are carefully hidden away at the moment.
How do we as a country ever get ahead if increasing unemployment is the only way to get out of the current situation the country is in?
We work some of the longest hours and for some of the lowest pay rates compared to similar countries.
So in all seriousness, how do we grow wages and living standards without causing inflation and other nasty effects?
The answer many people will say is - productivity. But the reforms of the 1980's which were supposedly meant to unleash our productivity have seen us become worst in almost every measure when compared to Australia and other similar countries. Just look at wages in real terms, education, health outcomes, infrastructure building etc.
We are competing in a global market for talent now and other countries will happily poach the best. Can we afford to wait for undefined goals of productivity improvements that havent appeared in 40 years to magically appear?
Meanwhile both Luxon and Hipkins seem to be posturing for the position over who is the best person to be the manager of our decline. We need transformation, not tinkering. But sadly the two main political parties offer the same style of bland tasting purple soup.
Inflating assets like houses - relative to income - is a very stupid thing to do (like what we have just done).
So we've already had high inflation - it just wasn't measured because we decided to focus on consumer items while we allowed house prices to climb 5% + more p.a. above the general rate of inflation (e.g. wages). The inflation was in debt/assets - and not in labour/consumer items.
But because you have to use labour (i.e. the production of consumer items in the form of goods and services) to pay for housing, which has been experiencing out of control inflation for about 30 years, we are now in a lot of trouble. Our options now are:
a. either wages will need to rise dramatically to allow houses to continue to be purchased at current prices (meaning house prices drop a lot in inflation adjusted terms even if they remain flat from here in nominal terms) but this will cause very high consumer inflation (i.e. because of the cost of labour to produce the goods and services increases), or
b. we keep wages under control (within the 1-3% mandate) but that will destroy asset prices in nominal terms (because we will need interest rates to remain higher for longer and will continue to pay higher amounts of interest on the debt - and people won't be able to pay current prices because wages aren't high enough to sustain them unless interest rates drop back to 2-3%).
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