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ANZ's Business Outlook Survey preliminary data for April show pricing expectations for NZ firms have hit a new high in a series that goes back nearly 30 years

ANZ's Business Outlook Survey preliminary data for April show pricing expectations for NZ firms have hit a new high in a series that goes back nearly 30 years

The pressure is on - the pricing pressure, that is.

Preliminary data for the April ANZ Business Outlook Survey show that pricing expectations (IE those intending to increase prices) hit a new record high.

And this is in a series that dates back to 1992, so nearly 30 years ago.

Cost expectations data in the survey only goes back two years. But this also hit "an eye-watering high" of a net 75% of survey respondents expecting higher costs.

"The stresses and strains in the New Zealand economy are starting to show," ANZ's chief economist Sharon Zollner said.

“Although reported own-activity expectations are off their highs, cost pressures are intense, and subdued profitability expectations suggest firms are not optimistic about their ability to recoup all of it."

Zollner said rising costs are "an economy-wide issue".

What's happening is that shipping disruptions, rising global commodity prices, the higher minimum wage, and skill shortages "are creating something of a perfect storm".

“It’s inflationary, but not growth-friendly, so the RBNZ will look through it as long as it appears transitory."

Commenting on the survey results, ASB senior economist Jane Turner said company profitability remains key and rising costs "could potentially derail the 2021 economic recovery".

"The key risk to the outlook is the possibility of falling profitability due to rising cost pressures. Profitability expectations [in the survey] dipped in March and April, after a steady recovery over the second half of 2020. Currently firms are hoping to preserve profitability by passing higher costs onto consumers.

"However, if consumer demand pushes back and firms must absorb the higher prices, investment and employment will then not recover over 2021 as currently expected," Turner said.

"We will be watching pricing, costs and profitability developments closely over the next few months."

In terms of some of the detail in the survey,  business confidence fall 4 points to -8%, while the 'own activity' outlook of firms was unchanged at +16.4%.

Details on the activity side were flat to weaker. Employment and investment intentions were unchanged, and export intentions rose slightly, but capacity utilisation fell 3 points.

Expected credit availability also fell 6 points.

The proportion of firms reporting higher employment than a year ago fell 2 points.

 Inflation expectations "remain well behaved" at 1.96%

Despite the intentions of firms to pass costs on where possible, profit expectations fell 3 points, with a net 4% of firms expecting lower profitability ahead.

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29 Comments

"an eye-watering high" of a net 75% of survey respondents expecting higher costs."

Cool!

That means those respondents are about to raise the wages of their employees to match those expectations! Great news, along with the rise in the minimum wage, jobs are going to be plentiful across the country to enable us all to pay for those higher costs.

There's something a little wrong with all of this that I can't quite put my finger on.....

13
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We are all going to be billionaires!

18
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I hear Venezuela has the most billionaires these days, followed by Zimbabwe.

nothing to worry about - we will just put price controls on rents .. followed by everything else .

And price control on housing with DTI & CGT, so to avoid NZ to become no1 place on the planet for higher dwelling cost. Recent 'success' of avoiding Banks stress, can be re-applied at will...unlimited supply numbers of overshoot QE, win-win situations for all.

Just hold on a little while longer. Soon we'll open up our borders to low-wage migrants from developing countries, bringing the much-needed cost relief to businesses.

Make sure they come by sea and bring a very large ship with them

18
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More signs of Stagflation...

This

The companion article to your link was a fascinating read. Thx.

https://www.zerohedge.com/news/2021-04-07/deflationary-gap-and-wests-war...
(The above text is an excerpt from the book "Grand Deception" which is only available from the Red Pill Press since Amazon.com banned the book (twice) at the orders of the US Department of State.)

Although I studied economics at the university, I don’t recall coming across the subject of Deflationary Gap. That’s strange, for we’re talking about a systemic flaw of the capitalist economic system that predictably corrodes the democratic framework of society....The Deflationary Gap can be closed either by lowering the supply of goods or by raising the supply of purchasing power, or by a combination of both methods. In the last century in Europe, the vested interests usually sought to prevent the reform of the economic system (a reform whose need was made evident by the long-drawn depression) by adopting an economic program whose chief element was the effort to fill the deflationary gap by rearmament. ....analysis, based on the historical developments in the aftermath of the economic depression of the early 1930’s closely parallels today’s events.

The economic crises which germinated from the same systemic feature present in the modern economic system, followed a similar pattern in economic and political developments that we are witnessing today.

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Inflation is ALWAYS "looked though" or fiddled out of the picture.

Central bankers are the biggest crooks in human history.

"Oh, no this is isn't inflation, goodness no. It's just that the things we eat and the things we live in are suddenly much much more expensive. It's ok though, becuase we have more money than usual right now, so we will buy them any way."

As Mick Jagger said:
'We're stuck between a rock
And a hard place
Between a rock (yeah) and a hard place'

As Mick Jagger said to Jerry Hall when he came in from work "another day, another quarter million dollars"

And she smiled at Mick while calculating half of a quarter mill in her head while saying "I love you honey".

Zollner said......

.....this and that. All of which are external causes unrelated to her employer. It's almost as if her industry has nothing to do with monetary inflation and price inflation. In fairness, Z is just commenting on the data. But it's always good to have a dig and deconstruct the propaganda.

But let's extrapolate a little. If firms are seeing dire costs going forward, what should we expect they will be doing? IMO, they will be tightening their belts and looking for efficiencies. This is not the response the ruling elite wants.

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If only we could all just "look through" price increases

And for another view ; ASB's parent, CBA, we get:

Commonwealth Bank’s head of Australian economics, Gareth Aird, says falling interest rates have been a major economic tailwind for the past 30 years.

But with rates at zero, and households carrying record levels of debt, a reckoning is coming that would be felt across the economy and especially in the property market.

“Every time the central bank cuts interest rates, a person walks into a bank and asks for a bigger loan to pay for a house. It happens again and again,” he says. “You get to that point where you can’t keep doing that when you have interest rates at zero. We’ve now had the last of the kicks of the can down the road.

https://www.smh.com.au/politics/federal/last-kick-of-the-can-property-ma...

Great link - thanks.

Yes. There they go again saying they are happy to target one price (money ie. interest) but not another (housing). As long as they are deliberately distorting relative prices we get weirdness and workarounds (regulation).
I wish the central banks would just shut down.

These people are all over the shop at the moment. Not a good sign. Perhaps Aird is looking to leave the industry.

The following highlights the thinking over at the RBA:

With the economy currently dependent on household consumption, stronger property prices are encouraging people to spend and boosting confidence that delivers wide-ranging financial benefits.

Now, the economy doesn't 'currently depend' on the wealth effect. It has done for the past 30 years.

Research done by the RBA itself suggests there are real economic risks with this ramp-up in debt. The research, by Fiona Price, Benjamin Beckers and Gianni La Cava and released in 2019, found strong evidence of a “debt overhang effect” where every 10 per cent increase in debt reduced household expenditure by 0.3 per cent.

Wow, that's a real indictment of the RBNZ and Treasury's optimistic faith in the Wealth Effect, surely.

Looks like there's plenty of steam to support housing up bound price trajectory.

Sharemarkets treading water maybe being kept afloat by FED etc to keep everything from imploding.

We have had a fantastic economic run since 2009 sustained valuations growth across asset classes. Historically speaking we know that valuations tend to regress to trend growth rates however. That's just a fancy way of me saying that businesses ability to pass-through costs to consumers may become constrained when the current economic cycle comes to an end, we can probably only delay the end of the cycle with massive monetary and fiscal intervention.

Question is, do equities do the same, given that most have inflated based on making one way bets using free money.
As soon as interest rates start to move back, the pressure will really come on.
My mortgage rates have moved from 6% to 2% over 6 years, but really can central banks take them back there without global collapse, given the level of debt governments themselves have taken on?

It’s amazing what money printing does.

Until confidence is waning, in short supply.. no body cares about policy results, which all based on calculating the short term impact.. keep on doing the same to the point when all those essential workers decide to do prolong work strike. NZ is just cosmetics, deep inside.. not worth it.