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ANZ economists say the strains in the economy are starting to show as the economy tries to grow faster than it physically can, given shortages of both goods and labour

ANZ economists say the strains in the economy are starting to show as the economy tries to grow faster than it physically can, given shortages of both goods and labour

Businesses' cost expectations are "off the charts", according to preliminary May results from the ANZ Business Outlook survey.

And if your costs are going up, what do you do? Why raise prices. And yes, the pricing expectations of Kiwi businesses have hit a record level again in a survey dating back to 1992.

A gobsmacking net 80% of firms surveyed expect higher prices ahead. So, a net 58% of firms expect to raise prices.

These inflationary pressures somewhat overshadow the 'good news' in the latest survey results, with business confidence surging again.

But commenting on the pricing pressures, ANZ chief economist Sharon Zollner said the strains in the economy are starting to show, as the economy tries to grow faster than it physically can, given shortages of both goods and labour.

"The degree of reported disruption caused by inward freight issues jumped for both construction and services, while for outward freight, reported disruption jumped economy-wide.

"Temporary it may be; immaterial it is not," she said.

"Any ECON 101 student or business person can tell you that strong demand and hampered supply is a sure-fire recipe for inflation.

"The [Reserve Bank] can ignore it only as long as inflation expectations remain well-anchored. So far so good; but it’s a lagging, not leading, indicator," she said.

In terms of some of the detail, business confidence jumped 9 points to +7%, while the own activity outlook rose 10 points to +32.3%. Export, investment and employment intentions, capacity utilisation, and profit expectations all rose between 4 and 10 points.

Expected costs rose another 4 points to a net 80% of firms expecting higher costs ahead. A net 58% of respondents intend to raise their prices, a 2 point lift to a fresh record high, in data that goes back to 1992. Inflation expectations rose 0.2%pts to 2.2%, a little above the RBNZ's explicit 2% inflation target.

Despite high costs, profit expectations jumped 10 points, with a net 9.6% of firms expecting higher profitability ahead, the highest since October 2017.

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50 Comments

21
up

Better print some more money....oh wait...

Touche

17
up

So let's give all the health workers a pay freeze and tax all the doctors more!!

10
up

I have serious concerns about this. Anyone who's been hurt or ill knows the superhuman efforts of health workers put into saving lives. This is one area that should not be messed with. Healthcare are already leaving for Aus due to house prices. Labour are endangering lives

10
up

With rising inflation it could equate to a 10% pay cut. The (Labour-aligned) unions are deafening in their silence, if National had announced this there would be riots.

We don’t get pay rises every year in the private sector. Some of these public service people are on 6 figures to move paper across from one tray to another.

Freezing doctors and nurses pay isn't a solution to that.

Agreed on that.

No, but the Government lacks the guts to say the paper pushing machine in the capital is out of control, doesn't deliver on policy or projects and has ended up lumping all public sector workers - front line, coal-face and people-facing roles with faceless report re-writers in Wellington because they don't want to have the argument.

Especially galling for the nurses who took a good faith offer on the basis that there wasn't any more to pay them with, only for the teachers to get a better deal by screwing the scrum, which I'm sure has nothing to do with union/labour party affiliation at all.

Low six figures isn't a lot compared to NZ house prices. That's why many from lots of fields - not just nursing - move over to Australia.

21
up

Don't worry guys, if we see significant inflation the RBNZ can raise rates significantly... oh wait...

So all up we are growing so fast that we cant keep up while printing and shovelling out $$ hand over fist because we need to stimulate and get things moving ...

Sounds like a nice balance

17
up

It's like pointing at a dangerous fire and crying "Help!".....while pouring petrol on it.

Here is Labour's whole next election slogan, branding name and PR campaign ideas to go with that.

https://www.youtube.com/watch?v=bM5mTEavepU

17
up

Meanwhile the Fed Reserve is trying to explain it away as 'transitionary'. The worldwide central bank circus is now painted into a corner. If they actually admit looming inflation, then they are required to raise interest rates to combat. Hence the new term' transitionary inflation'. Made up straight out BS.

Did this mob really think that all this money out of thin air, money for sitting on your backside stuff would not have an impact?

'Transitory' mate.

..yeah. Silly me..transitory "periods of medieval greatness". Even sillier than I thought.

These reports always conflate (or at least never seem to distinguish between) monetary inflation, and price inflation.

It's important to distinguish between the two, because one means that things are getting more expensive, the other doesn't. One the RBNZ can exert some influence over, the other they can not.

Which type of inflation we are talking about determines both what the effects will be, and how we should deal with it.

Bank propaganda and puppets never talk about monetary inflation. Why would they?

16
up

ANZ economists worry about inflation while their bank continues inflating the housing bubble. Perverse.

What would you have them do? Stop lending on houses?

Require them to hold more capital for a start. And they should all start to increase mortgage rates. There needs to be adequate pricing of risk because NZ is on the hook if they get it wrong.

RBNZ were doing that, but then got cold feet when they needed the banks to get money out the door to keep the economy moving.
Voila! Massive asset inflation and spending from cheap money just as planned when they dropped the cash rate. Just imagine everyone who renovated, bought a new house or boat, or didn't repay debt to drop into shares or bitcoin when the rates rise.
I suspect that Robertson will just stage more interventions to try and make the market bend to his will, each intervention (should be the title of Mays budget) "Creating perverse incentives and unexpected consequences".

Of course inflation won’t exceed wage rises
And that won’t mean less income to pay debt with will it?
Bankers don’t understand basic fact of income needed to pay debt
Interest rates don’t have to rise, just income falls is enough

Robertson continues to borrow, perhaps that's his strategy. Tax or inflate away any excess income too

Of course inflation won’t exceed wage rises
And that won’t mean less income to pay debt with will it?
Bankers don’t understand basic fact of income needed to pay debt
Interest rates don’t have to rise, just income falls is enough

https://surplusenergyeconomics.wordpress.com/2021/05/05/197-life-after-i...

"The “market economy” has been abandoned in all but name, transformed into what might best (and most neutrally) be described as the “make it up as you go along” economy. "

It’s the ‘Central Bank experiment’ economy. We are their lab rats.

If the central bank weren't being directed more and more by the government I might agree about whose lab rats we are. I'm sure Ardern is nice to her rats

It was well and truly abandoned when we turned property into a welfare scheme for the wealthy rather than an investment with normal ups, downs and risk.

15
up

It is high time to urgently raise the OCR, without waiting for the next OCR review. It should immediately go back up at least to 1.00% (pre-Covid level) and then be progressively raised to at least 2%, if no higher.
The "wait-and-see" approach could well witness the RBNZ being forced to raise rates at a much higher levels later on.
It is going to happen, it is just a question of whether the RBNZ have the balls to attempt a controlled increase now, or be pushed by the forces of the market, later on, to increase rates at a steeper and more damaging rate.
Interesting times to come for the NZ housing Ponzi.

If they increase the OCR, and interest rate before the same thing happens in the US, the UK, Japan and Europe, this would push the NZD high, making imports more expensive, making exports less attractive. This is not a desirable outcome. Maybe I am wrong and the international money is not that sensitive (specially when those rates are comparable with the US and the UK, where natrually NZs rate should be higher). But the impact of changing interest rate on exchange rate is often absent when people talk about it.

imports get cheaper with a strong currency, not more expensive

Clearly the previous poster meant exports, look at the context

1. So why are we stimulating?
2. Noticed any wage rises?
3. "economy" is busy. But are citizens getting richer and having more fun? Which after all, is what it's for.

Put the money in the bank and the bank is now legally entitled to use it for their bail in.

Put the money under the mattresses and inflation chews through till it becomes worthless paper.

Just plonk it into the next property and the banks can't use it for bail-in nor will monetary inflation catch up with it.

Be quick.

It's not as if the banks offer any return to speak of, so point 1 is largely moot.

The second certainty has driven asset prices (property, shares, btc) to the moon; the question is not if those pressures exist, but if they have already run their course and are priced in. Personally I find that answer hard to know.

So take your money, then borrow several hundred thousand dollars, and buy a property....then you obviously envisage a crash as you are talking about an imminent bail-in and that people need to “be quick”. You haven’t thought this through have you.

Exactly. If a bail in occurs a reset is upon us. The Fed agrees

https://www.zerohedge.com/markets/fed-warns-asset-prices-are-vulnerable-...

It’s intriguing that 58% of businesses expect to raise prices, yet their average expectation for inflation is only 2.2%. It seems like only one of those things can be true...

Had a dozen letters from local suppliers (from milk to metal) in the last few weeks. None increased prices by less than 8%. Our own materials sourcing costs have increased above 20% before receiving those supplier increases. Guess what we plan to do? (Hint, its a number bigger than 2.2%)

Cripes. Perhaps I should raise the price for my labour by 15%.

Just kidding.

Why does the economy need to grow so fast, oh that's right, actual goods and services are trying to expand at a similar rate to money supply expansion. Good luck with that.

It's interesting to me that I hear lots of yelps about material and labor costs but almost no businesses talking about expanding capacity to protect market share or grow? Many businesses seem to be too heavily optimised towards efficiency at their existing scale.

Even if you wanted to, getting materials, machinery or ingredients through the global supply chain would be next to impossible. Maybe they've shifted their focus from growth to survival........Some can't lift prices enough to recover the increase in costs from shipping and raw materials.

Also, have you noticed the empty shelves?
Cat food, Fridges at Harvey Norman, everything at Repco, furniture, ink and glue components for manufacturing. I ordered bathroom tapware - had to accept our 3rd choice as choices 1 & 2 had products unavailable. Extraction fan a 3-4 week wait, vanity 6 weeks. Painter had to go to 3 different stores to get the paint needed. Who can grow at the moment?

Many importers may have held off ordering or shipping the orders they do have. In the hope that the 4X Spike in freight costs may pass. But the spike is now seeming more like a plateau. For larger items like white-wear and furniture these increases are significant on per unit basis. Also the overseas manufacturers of these products are experiencing increases in costs for raw materials and components from their suppliers. Once annualised contracts have run their course and pricing has been reset for all. The playing field will be leveled and everyone will be free to reset wholesale/retail prices without the fear of loosing market share to players who are still enjoying fixed pricing. When the Mexican standoff ends and the bullets start flying. The price increases maybe very swift. Catching the RBNZ off guard

I have just been to meetings with all my suppliers, we are seeing increases of between 3 and 23%. Pick a middle ground. Freight is already insane. Competitors have already moved between 8 - 15%. We are holding for a bit. We have some product with a 12 month lead time.
Consumer goods are about to skyrocket just to keep business viable. Plain and simple.

Can't we just get on with the great reset, CB failure and austerity already? The longer it takes, the longer it will persist.

yeah, I'm with you.
And a negative OCR before it pops would make a nice capstone to the madness.

And the Govt is doing everything it can to increase costs to business introducing industry wide FPA's and compulsory unionism. Soon they won't be getting much in tax revenue. Businesses will fold and no one will be working. Haha watch this space people.