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ANZ Business Outlook survey shows a 'jaw-dropping' 67% of retailers expect to increase their prices

ANZ Business Outlook survey shows a 'jaw-dropping' 67% of retailers expect to increase their prices

Business confidence is flat - but inflationary expectations are not. Those are the key things to come out of the February ANZ Business Outlook Survey.

ANZ chief economist Sharon Zollner says Inflation pressures continue to build. Freight disruptions are worsening, and are most severe for the retail sector (inward) and manufacturing (outward).

“There is little sign of inflationary pressures abating as yet," she says

"A jaw-dropping net 67% of retailers expect to raise their prices.

"On the cost side, 90% of those in the agriculture sector, and more than 80% of manufacturers and those in construction expect higher costs.

“Retail sector inflation expectations have cracked the 2% mark again for the first time since April 2019.

Commenting on the survey, ASB senior economist Mark Smith said the pricing details from the survey "remained worrisome" and point to a generalised firming in consumer prices.  

"Cost pressures and pricing intentions remain elevated and capacity metrics have firmed, pointing to the risk of a protracted lift in prices that could see the [Official Cash Rate] moving up next year," Smith said.

"The issue will be for how long these pricing pressures persist for given rising costs and whether it heralds a firming in medium-term inflationary pressure that will see the RBNZ [Reserve Bank] raising the OCR.

"We expect the risks are tilting towards the latter, with the OCR to move up in August next year," Smith said.

ANZ's Zollner says the ANZ economists "take" for 2021 is that it "will not be an easy year for the New Zealand economy".

We are, however "absolutely better off than most", and will have less economic scarring, making our economy more resilient.

She said the overshoot in demand resulting from the disruptions of 2020 is beginning to dissipate, "and we expect the economy to go broadly sideways for a while as it digests the national income hit from the decimated tourism industry and as the housing market cools to something more sustainable".

“We have a lot going for us, but we’re not going to get away scot-free.”

Some of the detail of the survey:

Headline business confidence fell a couple of points to net 7.0%, while firms’ own activity outlook eased 1 point to 21.3%.

Most indicators are slightly lower than their preliminary February readings, likely influenced by the snap lockdown.

·Business confidence fell 2 points to net 7.0%.

·Firms’ own activity outlook eased 1 point to 21.3%.

·Investment intentions lifted 7 points, to 15.6%.

·Employment intentions lifted 2 points, with a net 10.6% of respondents planning to hire more staff.

·Firms are busy on the whole, with capacity utilisation up 6 points to 15.3%. The construction sector is the busiest by far.

·Inflation pressure is rising. Cost expectations rose 15 points to a net 71.9% of respondents reporting higher costs. A net 46.2% of respondents intend to raise their prices, a historically very high level. General inflation expectations rose to 1.76%.

·A net 1.3% of firms expect higher profits, down from 6.8% in December.

·Export intentions 5 points to a net 5.1%.

·A net 31% of firms expect credit to be harder to get.

·Residential construction intentions jumped a massive 32 points, with a net 52.2% of firms expecting higher activity. Commercial construction firms’ intentions eased 2 points, with a net 27.3% of firms expecting higher activity.

·Inflation pressures continue to build. Freight disruptions are worsening, and are most severe for the retail sector (inward) and manufacturing (outward).

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49 Comments

Inflation from where though? BDI is about the same as it's been for the last couple of years, LMI is still lower than it was post-financial crisis, local wage inflation was only 2.1% (mostly driven by the public sector), housing inflation is high but has been for a few years now without having much impact on the real economy and the growth rate of major economies has not been exceptional overall.

I just don't see any case for a sustained increase in inflation. It seems to me that it's a rumour that's feeding itself.

15
up

"I just don't see any case for a sustained increase in inflation. It seems to me that it's a rumour that's feeding itself."
I will give you a hint ..money printers "go brrrrrrrrrrrrrrrrrr

Obviously they haven't shopped for a 2nd hand car or computer parts lately

12
up

And that's exactly what will happen.
People will stick with the old car and the old computer because the cost of a replacement is prohibitive.

It doesn't matter that 'money printing' is going on.
The only people I know that are 'spending more' aren't actually 'spending'. They are bowwowing; tying up what cash they have been frightened into quitting, to buy one asset class.
That doesn't increase the velocity of money (which inflation needs to get going) but decreases it.
We've entered a zone of less spending, because whatever liquidity we have and whatever is created is immediately 'spent' and tied up in asset speculation of one form or another.
Only the threat of those assets falling in price will unlock the funds. And when that happens, it will be like that glacier that gave way in India last week.

Exactly

I appreciate that near zero interest rates, FLP and LSAP will increase CPI inflation in the short term but it's unlikely to be sustained as it just increases the debt that needs to be repaid.

We've seen this frequently in New Zealand, immediately after interest rates are dropped we get a small bump in CPI inflation which then regresses to trend, typically within a year of the OCR stabilising.

frazz,

So, QE = inflation? Well, it may have escaped your attention but QE has been going on for a long time now in Japan, the US and Europe. Would you like to tell me what their respective rates of inflation are? One thing you might look at is velocity of money.
Of course, as the Central banks well knew, QE would fuel inflation in asset prices and that has duly happened. Hyman Minsky explained this many decades ago.

Ironic that Labour then deny this is the case and try to blame "speculators" for house price inflation, when even their social housing provider - Kainga Ora - are buying houses flat out in the current market, making things much worse.......to try and cover their failures in building. Then sneakily claiming they've 'built' more new social housing than ever before. Over 1000 house sales to the Labour government since they were elected

"A jaw-dropping net 67% of retailers expect to raise their prices"
Cool, Sharon!
And guess what 67% of Consumers are going to do? 'Go without' is likely to be the answer.
But then again, you already know that - " it will not be an easy year for the New Zealand economy".

Higher retail prices + Lower turnover = Lower profits. (and the higher that profit margins are set, to off-set lower turnover, the lower the turnover will be)

The cost plus mentality of a nation beset by shopkeepers is depressing to say the least.

Well, I like having the option of purchasing a Turkish Kebab! My.. ummm, ..Kabab Guy (lol) had his rent increased last year. I told him; "Put Your Prices Up!" - he did. He put them up $2.50 - I'm fine with that.

If people in my area suddenly can't afford Kababs, well, I guess my Kabab Guy's landlord will need to find another tenant/lease-holder. Less tax take for the IRD? It might benefit the supermarkets.

Have you looked exactly were your "Kebab" meat comes from? Perhaps its best not to know?

Mines a quality establishment, but I have heard horror stories about Kabab meat. I'm not a huge meat eater anyway, often I favor falafel.

Eating is annoying too, would rather play with my servers. Fruit, Cereal and Stir Fry are easy things to prepare lol. Oh and stake lol.

Yes I always go with the falafal option too

Probably mechanically recovered meat steamed off the carcase, then an enzyme is used to glue it into on aggregate.

Sounds like maximising the productivity of each unit of meat, which is economically and environmentally excellent!

If prices goes up, the govt subsidies will go up the compensate that... truly amazing this subsidy. No need to do anything, sit down.. numbers difficulty? then ask for bail out.
Continue everything as usual, no trading?, no profit? - bail out even to the point of subsidising the profit. NZ really cannot adapt for any major set backs, expect the collective hand out folks:-)

Higher costs in an environment where bank lending to increase productive output capacity is absent will cripple those already struggling with outrageous shelter and associated rising utility bills. Are dramatically higher wages caused by outsize business demand forecast? Hardly.

The government is aching to reopen the borders and flood the country with foreign tourists/students (higher sales volume) and cheaper workers (lower wage bill).
Imagine the multiples of economic value we could generate if the support from the centre that goes to housing investors (accommodation supplements, QE) were redirected to productive enterprises.

Just bought a flat white for $12, but it did come with a marshmallow, made my day.

Must've been at Starbucks to cost that much.

Nah, it was from my local. But they said prices will be going up next week. It'll be $16 for a flat white. But they'll throw in 2 marshmallows. Orrsome.

I'm seeing $5 coffee on a regular basis whereas it was only $4 last year. Same price increase as housing then.

That's awesome dude, I sincerely mean that. It's probably the right price.

I brought a SMALL (takeaway) Flat White for $4.50 yesterday from a rundown, drab, bakery with ZERO seating. No marshmallow unfortunately! lol I normally just make my own coffee, if I want a coffee. I imagine $4.50 is a bargain here in ChCh.

Zack, I'm not sure if it was a bargain but it's admittedly pretty reasonable. My partner owned a cafe in a small town in Eastern BoP and she'd charge $6.00 for a medium size flat white. Given wages, leases, power etc etc have risen since then I'd say the same cup would be going for maybe $7.00. Anyone paying $12 (marshmallow or not) is getting stiffed big time, but if the consumer wants to pay why wouldn't you charge? At that rate it'd be worth setting up a mobile Foodtruck type thing and just selling coffee.

Food trucks are great businesses tbh, genuine cash cows! Especially if you can find a centralized, fixed-site for your vehicles. Of course it all depends on your council's regulations/fees.

I have thought about starting a food truck business before.

You actually paid $12 for a cup of coffee??!! No wonder businesses are expecting to raise their prices - why wouldn't they?

Hey! and the topping, seating, wifi access, decor, use of a cup-&-saucer, hand steamed beans, serviettes, smiles.. who knows. Don't forget the marshmallow either. He said it made his day too. $12 sounds like a bargain tbh.

Maybe he was having a hard day, just wanted some time to himself.. might have cheered him. Probably great service. $12 might actually be too cheap. $12 coffee isn't my thing, but I'm not going to tell people how to spend their money - I'm not a Pinko.

Not calling u a Pinko btw, your shock is just a little funny to me. :) With high rents increasing the expenditure of many business, merchants should put their prices up. However, merchants need to (now more than ever) be carefully they sell, import and produce products people want. Otherwise bankruptcy knocks.

Bugger,

If you say so, but I struggle to believe you. I have a flat white every day and have never seen one at anything like that price anywhere including central Auckland and Wellington.. You were ripped-off.

Compare our retail prices with Australia within the same chains for the same goods. Keep in mind their wage costs are higher than ours and people have more in their pocket to spend. NZ is becoming little Switzerland without the watches.

NZ is becoming little Switzerland without the watches.

No. Switzerland is a creditor nation. Basically, they're better at living within their means compared to NZ. Big difference.

Indulge me for a minute, what happens if real estate listings dry up to the point there are scarcely any listings at all?

That's kind of like asking "what happens when all ICE cars are banned?" it'll never happen

Yep and I just saw a dinosaur walk past my house

@dago

- Real Estate Agents/Salespersons would become unemployed.
- Property prices would dramatically increase, unless bank restricted credit (long squeeze).
- It would drive a talent exodus to Aus, UK and Canada
- Homeowners changing cities would have to rent
- Productivity would start collapsing due to the immobilized work force
- Banks would do less mortgage lending at best

It would not be ideal, but depends on your definition of "..real estate listings dry up..".

That's what happened in the UK +30 years ago. A different result though.

- Real Estate Agents frequently had property portfolios and tried to sell them to pay the bills in the absence of another job.
- Property prices fell as banks restricted credit. No one could afford the discounted prices without more debt. Off-the-plan units sales collapsed.
- Talent exodus to places like New Zealand :)
- Rents soared as people did indeed have to rent to move location for work. But then fell as a glut of unsold properties came onto the market in return.
- For nigh on 5 years it was far, far cheaper to buy than rent as prices tumbled and those who'd put "20% Down!" hoping to sell before completion of projects walked away from the deals. Very few had the means to buy.
- The market was trapped in a sea of negative equity.

Of course, it could be different here. Time will tell.

Interesting you say "For nigh on 5 years". Just in general.. on average if you will; 5 years seem to be the Peak-to-Trough period when [for want of a better term] 'housing bubbles' POP.

Don't ask me why that is, it just seems to be the way.

bw,

You cannot surely equate 'talent exodus to places like New Zealand' with unemployed real estate agents. that would represent an oxymoron.

lol they do have a tape-worm quality about them, but I wouldn't judge them too harshly.

Interesting result! I figure a fire cannot burn very brightly with little oxygen

Why are banks surprised. Printing x cheap debt = stupid house prices and thus wage demand. Business x wage demand = inflation or bankruptcy.

Do the math. Being surprised is simply a joke.

This inflation goes well beyond business.
The used vehicle market, both private sellers and dealers has gone insane as well.
Going off asking prices on Trademe, the market value of my 2016 Ford Ranger has actually increased by $6000 or maybe more in the last year.
I am seeing 2-3 year old utes and SUVs now advertised for more than what they cost brand new!
Now about all that depreciation that businesses claimed on their vehicle fleet, going to need to be a lot paid back!

"Now about all that depreciation that businesses claimed on their vehicle fleet, going to need to be a lot paid back!" - not if the business sells the vehicles to their owners/shareholders at BV first.

I have seen increases at small independent take-away food outlets. These are businesses which pay minimum wage and what is happening to minimum wage?

Lol "housing market cools to something more sustainable"

KFC put their price up and we haven’t had it for 2 months. Probably a good thing...

Ha, no tourism, no international students, less disposable income for 1st home buyers and renters, less income security, must equal less demand. But we expect to raise prices, because still have to pay for our inflated lifestyles, insurance, rates, electricity, telecoms, debt, because nothing ever deflates except the value of the tokens.
Methinks the economic model/theory is FUBAR. Of course nobody wants to admit it because it's too much of a mindfuck to realise everything one's been taught is false.
So it leaves insanity as the only option. Keep doing the same thing over and over hoping for a different result.
ROFLMAO

According to some there's always MMT, Governments will print more money now and tax it back at some later point without causing economic pain - everything's going to be just fine.......

From some suppliers we've seen price increases either side of Christmas of 5%+ each from China... This plus shipping costs (2x-3x normal rates) means price rises are inevitable. Guarantee a lot of importers are in the same boat...