The economy looked like it was picking up, now it looks like maybe it isn't, but inflation definitely is picking up. What do we do? And where is our timely economic data?

Any pleasure we may feel at news that the economy performed better in March is likely to be tainted, to say the least, by growing indications that things have all gone a bit south again in the June quarter we are currently in.

I'm writing this article before we've even seen the March quarter GDP figures being released on June 19.

This is what I said earlier about the likely outcome for those figures.

There's two main points to be made here:

Firstly, there's increasing signs our inflation is starting to blip upwards uncomfortably again, while at the same time our not-exactly boiling economy may be going cold again.

We could be looking at the dreaded 'stagflation' - a combination of rising prices and a shrinking economy.

Secondly, we are suffering from being in a vacuum when it comes to receipt of timely economic information.

It's vaguely ridiculous that we are still making assumptions about what the economy did in March in terms of official information, while at the same time already getting clear indications that the March information is going to be more than historic and may even just look like a glitch when we do get to see it.

It could be very old news. We could be reading about a recovering economy when the reality is that it's declining again. Our next official GDP information won't be out till late September.

Our last inflation reading, from the March quarter, showing an annual rate of 2.50%, came out on April 17. We don't get the June quarter ones till July 21.

In the meantime the Reserve Bank's Monetary Policy Committee will be getting together on July 9 to decide whether to further lower the Official Cash Rate, currently at 3.25%.

Questions. Questions. Does the RBNZ leave the OCR unchanged on the basis that the March GDP figures (I assume) point to a recovering economy so no more 'help' is needed just at the moment?

What to do?

Does the RBNZ drop the OCR further on the basis of the more timely information suggesting that activity in both the manufacturing and service sectors declined sharply in May?

Or does it leave the OCR where it is because of signs inflation's sparking again?

The fact is there's going to have to be a fair bit of educated guesswork involved in this decision, which doesn't make me feel comfortable.

Ultimately, I think we'll find that the RBNZ will place quite a bit of emphasis on the outcome of the next NZ Institute of Economic Research Quarterly Survey of Business Opinion due to be released on July 1. This survey has been in existence since 1961. It's tried and true and much trusted. It will show pricing pressures emerging. It will show falling levels of business activity.

But it's not ideal to be relying on a survey, even a tried and trusted one, for such big decisions.

It seems to me the RBNZ has gradually been relying less on the 'official' sources of information coming from Statistics NZ and more on the unofficial 'high frequency' data showing a picture of the economy that isn't months old.

The 'hawkish horror'

A key turning point appeared to be after the disastrous 'hawkish horror' that was the May 2024 RBNZ OCR decision and Monetary Policy Statement (MPS). In that decision the RBNZ actually gave an increased chance that it would RAISE the OCR again. Even as the RBNZ was doing this, the economy was positioning itself adjacent to a cliff face.

The RBNZ was forced into a shuddering U-turn at the following OCR decision in July and duly began aggressively lowering the OCR in August as the economy was in the middle of back-to-back -1.1% GDP shrinkages for the June and September quarters - a recession we found out about when the September quarter figures were released shortly before Christmas.

As we know, the Government in its latest Budget approved funding for Stats NZ to start producing a monthly Consumers Price Index. This long overdue development is most welcome, but I'm not sure why we have to wait as long as till 2027 for it to be introduced.

However, more is needed. It's clear we need more timely GDP information. Arguably at the moment, while the RBNZ is in the process of lowering the OCR, timely information on the performance of the economy is more important than timely inflation information. That's because the RBNZ needs to know if, and how quickly, the reductions it is making to interest rates are reviving the economy.

The Government shouldn't be congratulating itself about providing funding for one overdue measure, when much more is needed. 

It's challenging out there

Undoubtedly these are very challenging times. 

What will the RBNZ do on July 9? 

As I say, in the absence of sufficient timely official information it will likely lean heavily on the NZIER survey mentioned above.

I think the most likely outcome at the moment is that the RBNZ will 'pause' and leave the OCR at 3.25%.

However, if the NZIER survey does seriously back up the May manufacturing and service sector survey information - IE showing a big fall in activity - then wouldn't another cut to 3.00% be advised?

But if the same survey does back up indications of some uncomfortable inflationary pressures then a 'hold' would be the right thing to do.

If this all sounds a bit up in the air and indecisive, well maybe. That's why we need still more timely economic data. It won't fix the economic ills, but at least we'll know at the time just what the ills are.