Weekend briefing: Global inflation overshoot expected

US retail sales stay high; US consumers fear rising inflation; South Korea wins higher export prices; commodity price rises falter; UST 10yr at 1.63%; oil and gold up; NZ$1 = 72.5 USc; TWI-5 = 74.1

15th May 21, 8:13am by David Chaston

Abel Tasman coastal walkway

Here's our summary of key economic events overnight that affect New Zealand with news that everyone now seems to expect an inflation overshoot.

But the US April retail sales data was reported as 'weak', with no gain from March. This wasn't the +1.0% rise markets were expecting. Of course, the year-on-year change is barely relevant, but if we look back to April 2019, last month's result is +21% higher, so it really isn't a bad result that was posted. And if you realise that the March 2021 comparison is a very high bar, being able to maintain that should be seen as a good 'win' and a continuation of stimulus-fueled spending.

US industrial production data came in under expectations as well. That too continues a volatile set of month-on-month changes. Again going back to April 2019 it records a -2.5% decline, so this data is no net progress even if there is a good net gain over the last six months.

The latest US consumer sentiment survey, this one from the University of Michigan, is lackluster as well, recording an interruption in their optimism. A key reason is the sharp rise in inflation expectations. This survey finds it up to +4.6%. If it happens at that level, it would be the highest annual rate since 1990. The current actual actual rate is +4.2%, so it is quite within the realms of possibility - even likely.

In Canada, their bank loan officer survey found lending conditions tightening for both mortgage and business borrowers.

They also reported industrial production data, and that was positive and boosted by rising production in their car manufacturing industry.

Hong Kong finally has some good GDP data to report. Their Q1-21 economic growth was +5.4% better than the ugly Q4-2020 data, and +7.9% higher than the pandemic-affected Q1-2020.

In South Korea, their booming export export sector seems to be quite able to sustain that growth with fast-rising prices. Export prices were up +2.2% again in April from March, capping a +11% rise just in the first four months of 2021.

A new report detailing widespread use of forced labour in the global solar industry supply chain includes accusations against the world’s four largest solar panel manufacturing companies. Nearly half the global supply of polysilicon comes from Xinjiang in western China, where much of the Uyghur and Kazakh working population is pressed by government and private labour contractors into industries producing polysilicon through so-called “surplus labour”, “labour transfer” and “poverty alleviation” programs. China’s government denies the existence of forced labour in Xinjiang, or anywhere else in the country.

In Ireland, their official health system was taken down after a ransomware attack. Doctors are unable to access patient records after ‘very sophisticated’ attack. It will be days before it is back online again.

The ECB released minutes of its latest monetary policy meeting, and it now sees the risks if inflation "tilted to the upsiade", lifting from +1.7%.

The commodity rally is stuttering. The iron ore prices is slipping still and now off its highs. Copper is too. There are market fears that Beijing is about to crack down on buyers who bid higher prices.

On Wall Street, the S&P500 is rising again today, up +1.5% in afternoon trade from the prior day, and the momentum is rising as the session progresses. Overnight in European markets rose +1.4% on average. Yesterday, the very large Tokyo market gained +2.3% but that was just recovering the Thursday drop. For the week it is down -4.3% however. Hong Kong ended its Friday session up +1.1% for the day, but for the week that booked a -2.0% loss. Shanghai was up +1.7% yesterday, capping a week where it rose a net +2.1%. The ASX200 ended up +0.5% yesterday for a weekly loss of -0.9%. The NZX50 Capital Index fell another -0.5% yesterday and ended its week down -2.9% with a continuous string of daily declines.

The latest global compilation of COVID-19 data is here. The global tally is still rising, now 161,374,000 people have been infected at some point, up +753,000 in one day, still largely driven by rises in India and Brazil. Global deaths reported now exceed 3,349,000 and up +14,000 in one day. Vaccinations in the world are also rising fast, now up to 1.405 bln (+32 mln per day), and in the US almost half of their population (47.3%) have had at least one dose as they keep up their fast rollout. Now more than one third have been fully vaccinated (121.8 mln people). The number of active cases there has fallen to 6,363,000 (-8,000) with fewer new infections than recoveries recently but slower progress.

The UST 10yr yield starts today at 1.63% and down -4 bps from this time yesterday. Over the past week it has risen +5 bps. The US 2-10 rate curve is marginally flatter at +149 bps. Their 1-5 curve is also slightly flatter at +78 bps, while their 3m-10 year curve is now at +164 bps. The Australian Govt ten year benchmark rate is down -3 bps at 1.72%. The China Govt ten year bond is down -1 bp at 3.15%. And the New Zealand Govt ten year is up +2 bps at 1.91%.

The price of gold starts today up +US$19 from this time yesterday at US$1842/oz. Over the past week, the price of gold has risen a net +US$12/oz or +0.7%.

Oil prices start today yo-yoing back up, this time by +US$2 from yesterday to just under US$65.50/bbl in the US, while the international Brent price is just under US$68.50/bbl. These are very similar levels to a week ago.

The Kiwi dollar opens today up at 72.5 USc and a rise of +¾c overnight. Against the Australian dollar we are up marginally to 93.1 AUc. Against the euro we are also firmer at 59.7 euro cents. That means our TWI-5 starts today at 74.1 which is actually little-changed from this time last week..

The bitcoin price is now at US$50,552 and a partial +4.9% bounce back from this time yesterday. Volatility in the past 24 hours has been a high +/- 4.0%. Over the past week, the bitcoin price has fallen -11.5%. The bitcoin rate is charted in the exchange rate set below.

The easiest place to stay up with event risk today is by following our Economic Calendar here ».

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Source: RBNZ

Source: CoinDesk

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83 Comments

by richard1965 | 15th May 21, 8:29am 1621024145

https://www.stuff.co.nz/business/opinion-analysis/125117634/what-action…

Tom Pullar on stuff.co.nz goes through options that RBNZ could opt though himself have doubts, if they will be effected or if effected by how much BUT WHY the silence on a tool that is not a silver bullet but may well turnout to be a missile ( bullet may miss the target but not the missile ) - Interest Only Loan, which if acted upon is bound to have effect on / target speculative demand ( Have no doubt) and RBNZ may not have to look at other tools, which as it is are talking about, only to distract and play with time.

Also many experts / Lobbyist are silent as they too know that stopping IO loan may actually contain the ponzi. Talking and discussing is fine, timepass but who the hell actually wants to stop it.

Rbnz should just stop IO loan on new purchases and allow it to be used, in case of emergency. Existing IO could be given a deadline to be phased out over a period of time. Can continue to give it to industry as business loan on commercial rate - No rocket science, "where their is no intent their is excuse" but Mr Orr may be laughing and thinking that " where their is a will.... to support the ponzi..... their is a way - Wait and Watch".

Another opinion, another idea and this time is Rent Control but again no mention of IO...is Mr Orr feeding ....to distract and to avoid......IO loan.

It is good that at least, their is an acceptance of need to do much more :

https://i.stuff.co.nz/business/opinion-analysis/300305798/housing-marke…

by Pragmatist | 15th May 21, 9:57am 1621029477

This broken record is getting tiring..

by Amokk | 15th May 21, 10:01am 1621029698

Then don't read it boss....pretty simple really.

I agree with everything Richard says.

by Pragmatist | 15th May 21, 10:23am 1621031033

He posts the same thing every day, often multiple times a day under various non-de plumes. And this website doesn't have a block function to get rid of it.

by childofthesun | 15th May 21, 2:00pm 1621044056

Lucky this website doesn't have a block on bad spelling. That should be nom de plume.

by Pragmatist | 15th May 21, 2:52pm 1621047173

Indeed it should, i'll blame the autocorrect on this tablet.

by richard1965 | 15th May 21, 10:26am 1621031160

Pragm...

Who has broken the record ....people in power and if they shamelessly and repeatedly can screw FHB than what do you expect.

They by their action or inaction are breaking the society on a daily basis so.......and if they are not tired than why should we in opiniating, specially when even media and experts fail to highlight.

May be have touched a nerve that hurts you.

by Pragmatist | 15th May 21, 10:28am 1621031334

No, just annoying like a repetitive high pitched whine. If i wanted to watch a circlejerk i'd go to reddit.

by richard1965 | 15th May 21, 10:36am 1621031795

Understand your irritation that is caused to you just by a comment (which you can easily ignore) but think about the irritation that FHB faces by repetitive no response from Mr Orr and to add salt to wound comes with ridicluse excuse and as it effects their lives cannot be ignored.

by Gummy Bear Hero | 15th May 21, 11:53am 1621036418

... exact opposite of Mr Pragmissedtits ... I enjoy your posts ... keep up the good work : cheers !

by Groat | 15th May 21, 10:11pm 1621073491

He is obviously ok Jack.

by Audaxes | 15th May 21, 10:35am 1621031710

A global blight - Home Prices Are Soaring So Fast, They Are Negating The Benefits Of Low Mortgage Rates

by Kate | 15th May 21, 11:42am 1621035733

And everyone other than an RB economist could've predicted it.

by Nzdan | 15th May 21, 12:16pm 1621037816

Wait and watch.

by Audaxes | 15th May 21, 8:30am 1621024214

The latest US consumer sentiment survey, this one from the University of Michigan, is lackluster as well, recording an interruption in their optimism. A key reason is the sharp rise in inflation expectations. This survey finds it up to +4.6%. If it happens at that level, it would be the highest annual rate since 1990. The current actual actual rate is +4.2%, so it is quite within the realms of possibility - even likely.

And yet bond vigilantes cannot be bothered to recover this implied inflation cost and a return to compensate for interest rate risk while 10 year UST yields persistently languish at ~1.63%. Furthermore, US Treasury Bills are struggling not to breach the zero boundary to print negative yields.

by realterms | 15th May 21, 8:41am 1621024868

Are those yields indicative of market expectations in the time of QE?

by Audaxes | 15th May 21, 8:57am 1621025870

Central banks generally follow market rates down and up when an economy justifies and can sustain that outcome. The recent NZ government 10 year bond yield low was around 0.50% in May 2020, currently 1.91%.

by Jonny.Foe | 15th May 21, 9:18am 1621027098

Nope - the price of the bonds and therefore the yield is controlled by govt banks, who have realised that yield is, like OCR, a policy variable.

by Audaxes | 15th May 21, 9:57am 1621029420

Here’s what, oh, the Reserve Bank of New Zealand (RBNZ) has to say about LSAP effectiveness:
When we buy assets, this increases their price and so reduces their yield. That means the interest rate, in this case on government bonds, fall. This has the effect of ‘lowering the tide’ on other interest rates in the economy, particularly longer-term interest rates of two years or more. It also reduces the cost of borrowing for households and businesses… Link

by Audaxes | 15th May 21, 10:03am 1621029795

For all the inflation hysteria everywhere else, you really have to wonder why so calm and even contradictory (given how low yields and especially real yields are right now) the bond market continues to be in this post-Feb 24-25-26 phase. Everything price-wise in the real economy keeps coming up hot if not epically so, and yet placidity rules in the one marketplace where inflation expectations are a centerpiece to all of its fundamental aspects (Fisherian).Link

by Audaxes | 15th May 21, 10:08am 1621030103

Low rates do not signify stimulus nor abundant liquidity, they often describe just this sort of monetary tightness and chaos. Abundant liquidity means everyone gets funding; lack of liquidity, which does show up in low rates, means that money dealers are being prohibitively discriminating.

Low rates are not, repeat, NOT STIMULUS. They are the signal that "stimulus" doesn't work. If you have to keep doing something over and over, year after year, is that a sign of success? Nope. Bonds are kind enough to identify the cause, too. Tight money.

Low interest rates aren’t a central bank providing accommodation, they are instead its worst nightmare being shoved right back in their face. Well, our worst nightmare because for one thing despite repeated failures, rates that never rise testifying to that failure, central bankers are never held to account.

To correct this view, Friedman pointed out the basic, non-trivial distinction between a liquidity effect and an income effect. Low rates can be stimulative in the short run (the liquidity effect), but over the long run their persistence means something far different. A yield curve is supposed to be upward sloping given the core time value of money and investing. That arises from opportunity cost, meaning the more plentiful the opportunities the greater the time value and the steeper the curve (the income effect). Yield and/or money curves (the eurodollar curve and even the history of the OIS curve) that collapse and remain that way unambiguously demonstrate that "stimulus" deserves only the quotation marks. Courtesy of Alhambra Partners

by realterms | 15th May 21, 10:13am 1621030436

The cut-and-paste dump is not really that helpful. Synthesis is much preferred.

by Audaxes | 15th May 21, 11:32am 1621035145

Synthesis is much preferred.
I sorely wish global central banks would analyse their recorded failures to synthesise new policy, rather than tired irrelevant QE repetition since 2000.

by Foxglove. | 15th May 21, 8:28am 1621024084

“US Consumers fear rising inflation” I fear inflation in NZ has already arisen from the grave. Based solely on limited personal experience, ie my grocery bill, calculated risen about 15% since NZ came out of lockdown.

by JimboJones | 15th May 21, 8:42am 1621024972

try getting a tradie quote if you want to see serious inflation. That’s if you can find one.

by realterms | 15th May 21, 9:23am 1621027416

That problem largely predated the current situation. I'm sure it's getting much worse.

by Ahuhyeah | 15th May 21, 11:19am 1621034374

I've been paying more attention lately and see 5 - 7% across many of my common purchases and in my workplace.

by CWBW | 15th May 21, 8:33am 1621024409

Inflation seem to retard production output. I wonder what impact it has on our residential building industries that faces the same problem of rising material costs. Will they absorb it or pass it to consumers? If it's the later, it'll be solid Christmas this year.

by mikekirk29 | 15th May 21, 8:42am 1621024962

Simple maths: inflation higher than wage rises = reduction in discretionary spending. Also less income to service debt. Which of course implies less to service mortgage and fewer inclined to buy houses

by JimboJones | 15th May 21, 8:47am 1621025249

I don’t think it’s that simple. For example for many people a lot of their income goes into their mortgage. If mortgage rates don’t go up or if they are fixed then a small pay rise can enable a much bigger increase in discretionary spending. But if mortgage rates do go up it will make a big dent - by design of course.

by rastus1 | 15th May 21, 9:46am 1621028802

Yes and an increase in spending on necessities and in the case of non perishable essentials, purchasing brought forward to stock up to avoid future rises - with the affect of decreasing availability and thus increasing price pressure even further.

by Audaxes | 15th May 21, 8:50am 1621025441

But the US April retail sales data was reported as 'weak', with no gain from March. This wasn't the +1.0% rise markets were expecting. Of course, the year-on-year change is barely relevant, but if we look back to April 2019, last month's result is +21% higher, so it really isn't a bad result that was posted. And if you realise that the March 2021 comparison is a very high bar, being able to maintain that should be seen as a good 'win' and a continuation of stimulus-fueled spending.
Hmmmmm.. A Half-Baked Attempt To Pull Banking Back In Before It's Too Late

by Let me be Frank | 15th May 21, 9:31am 1621027882

When does currency cease to be though?....only when theres a widely accepted/practical alternative.

Dont think one will appear before the fact.

by JimboJones | 15th May 21, 8:55am 1621025718

So it terms out that central banks can create inflation, it just took Covid to force rates low enough. Will be interesting where they go from here: allow inflation to bed in before jacking up rates with the risk of inflation getting out of control, or raise rates now and maybe go back to sub-par inflation or deflation.

by Jonny.Foe | 15th May 21, 9:24am 1621027468

What a lot of fussing… https://www.forbes.com/sites/johntharvey/2021/05/12/four-reasons-to-sto…

by Rob Reid | 15th May 21, 10:04am 1621029871

Apologies if I missed it but the article doesn't seem to mention the main risk of the inflation that seems to be picking up - the likelihood that interest rates rise in response.
Normally this would be a fine and dandy market reaction, but at Peak Debt Fueled Ponzi I think a certain amount of fussing is justified.

by realterms | 15th May 21, 10:07am 1621030073

The argument would seem to be that inflation is ok, so no need to raise rates in response. Not an endorsement of that view on my part BTW.

by Rob Reid | 15th May 21, 10:20am 1621030852

Yes, I suppose this (from the article) is close to saying that:
"Perhaps the most pervasive inflation myth is that it’s a net loss for society. If prices are increasing, then we are all worse off! This misunderstanding is the primary reason for the current panic and it’s the motivation behind the Federal Reserve’s destructive policy of hiking up interest rates every time it appears that the economy is growing rapidly."

So if inflation goes up and govts continue to suppress rates then savers looking for a real return are forced to take more risk, or lose motivation to lend/deposit/invest and tuck money into inflation hedges. That leaves QE to feed the frenzy, generating more inflation, of at least something, even if it's just assets. Perhaps it's not so bad, for the people setting the policies.

by Jonny.Foe | 15th May 21, 3:51pm 1621050703

What we have learned in Japan over the last 20 years, and pretty much everywhere else in the last year, is that market interest rates in sovereign countries can be easily mainipulated by central banks - by buying bonds in the secondary market (QE) and keeping the overnight rate low (OCR). There is no way that central banks are going to let interest rates rise.

The inflation scare is simply a reaction to supply chain disruptions and demand for scarce materials and labour, which have driven prices up for some things. This will only become true inflation if wages rise to meet the prices. There is fat chance of that happening across the board - although tradies and a few other lucky sods are going to do very well indeed.

by MLSmith1 | 15th May 21, 5:17pm 1621055822

Say money is cheap... wages haven’t kept pace with inflation goods/services/houses/asset prices! What will the workers do... strike, protest, change government = political pressure. What will then happen - wages are promulgated to rise to meet the people’s demand. What will we then have - inflation.

The facts are nations have been turned upside down with reaction to COVID. Supply chains out of sync, ways of doings business has changed. Commodities are through the roof, nations jostling for power are gaming trade and so on... we have inflation that will be with us for a long time..

You can’t expect the new worker to be paid the same in 2019 when his hourly rate is now below his cost of living. Labour migration is the one lever that cannot be pulled anymore.

by Jonny.Foe | 15th May 21, 9:42pm 1621071724

For those at the back… true inflation will only happen when people are paid enough to allow it to happen. Now public sector pay freeze and starts to makes sense, no?

by Henry_Tull | 15th May 21, 9:48am 1621028925

False idol news

Australia’s former deputy chief medical officer has challenged doctors to smash the “false idol” of COVID-19 eradication and prepare the public for the next critical phase of the pandemic: open international borders and the return of the virus in the community.

https://www.smh.com.au/national/former-deputy-chief-doc-warns-australia…

Mind reading news
Jacinda Ardern has stepped in to correct comments Ashley Bloomfield made yesterday, suggesting New Zealand would likely need to be at "Level 2.5" to be able to successfully manage the opening of the country's border.

But Ardern said what he meant was Level 1.5 - upping the "buffers" when the borders do eventually open.

Because:
Opening up the border to vaccinated tourists to resurrect this country's tourism industry could require Kiwis to return to life at Covid alert level 2.5.

That is a future vision floated by director-general of health Dr Ashley Bloomfield when asked whether borders might open before the vaccine rollout finished - scheduled for the end of this year.

by realterms | 15th May 21, 10:10am 1621030256

> Opening up the border to vaccinated tourists to resurrect this country's tourism industry could require Kiwis to return to life at Covid alert level 2.5.

1.5. Not 2.5. As you yourself said just above that.

Though I don't know why I bother. You're just trying to bag a government you don't care for, rather than analyse the issues.

by Henry_Tull | 15th May 21, 11:17am 1621034223

Gotta follow the science.

by Gummy Bear Hero | 15th May 21, 1:25pm 1621041907

... Ashley Bloomfield is far too conservative with his call for lockdoom level 2.5 .... I reckon level 2.25 would suffice ...

by HouseMouse | 15th May 21, 5:18pm 1621055909

I think 2.279 would be best

by JimboJones | 15th May 21, 7:21pm 1621063318

All joking aside I think level 1 is the best. Not worth any change in lifestyle just to let tourists in

by Gummy Bear Hero | 16th May 21, 1:13pm 1621127627

Level 1.0 .... OMG ... are you mad , lad .... that's high risk for the team of 5 million ... let's be kind , and compromise ... Level 1.666 .... OK ?

by Carinaz | 15th May 21, 9:50am 1621029038

Who and how inflation data is collected can be questioned as is not inclusive.

Everyone was talking about reset and the biggest reset will be in crypto currencies, possible only because of reserve bank attitude and policies.

They believe that all problems could be solved by pumping money and inflating the asset class and are not ready to address the side effect, which in time to come will be worst than the solution.

Market has found a solution to bypass reserve bank, is it good or bad, only time will tell but definitely outcome will be bad for reserve bank as they may lose their relevance and power to control and that time is not far away.

by Rob Reid | 15th May 21, 10:08am 1621030123

"may lose their relevance and power"
I certainly hope so.

by Squishy | 15th May 21, 10:08am 1621030127

I was listening to an interview on Bloomberg about inflation the other day and their economist pointed out that if house prices where used in CPI, instead of Owners' Equivalent Rent (currently running 2%), inflation would be in the 8% range.

I wonder what that figure would be in New Zealand? My guess is much higher.

by realterms | 15th May 21, 10:16am 1621030609

I wish NZ had alternative inflation indices. Too small for anyone to bother I guess.

by Rob Reid | 15th May 21, 10:30am 1621031441

Peter Schiff trawled magazine prices (using cover images) going back a couple of decades and concluded the “Newspaper and Magazine Index” component of US official inflation was understated by a factor of 3.5. This from 2013:
https://www.capitalismmagazine.com/2013/01/inflation-propaganda-exposed/

Would be fun for someone to start their own unofficial tracker. Maybe MikeKirk29 can help us out?

by realterms | 15th May 21, 10:47am 1621032446

Yeah the US has a few. Shadow stats and ace and chapwood and probably more besides. None here that I know of, at least publicly available.

by Audaxes | 15th May 21, 12:36pm 1621039010

Shadow Government Statistics - Alternate Inflation Charts

by Rob Reid | 15th May 21, 3:51pm 1621050715

Nice. So for the US:
Current Offical CPI = 4%
Current CPI using pre-1990 method = 8%
Current CPI using pre-1980 method = 12%

Even I can spot that pattern.

by Audaxes | 15th May 21, 6:42pm 1621060923

It's all to do with restricting inflation adjusted government transfer payments. Pensions etc.

by realterms | 15th May 21, 9:29pm 1621070976

That's... borderline conspiracy theory.

by youngdumbandbroke | 15th May 21, 9:45pm 1621071923

On what basis?

by Squishy | 15th May 21, 10:48am 1621032536

I think the New Zealand CPI measure is even more purist because it excludes rental equivalence entirely. That might explain why New Zealand, even with extreme pressure on household budgets, shows very little inflation. The way we measure CPI is insulated.

https://bit.ly/3ofIN6y

by David Chaston | 15th May 21, 11:55am 1621036532

Why would you put house prices in the CPI basket? Household budgets pay rent or mortgage interest. No-one buys a house for cash, and they may buy only 2 to 5 times in a lifetime.

Two thirds of households own their own house, and two thirds of them have paid the mortgage down more than ~50%.

That leaves only about 4 in ten households making significant mortgage payments, and the interest portion of that payment is probably now the lowest in years.

Making an assumption that every household buys a house every month makes no sense to me and I can see why house prices are never included in the CPI.

That is not to say there aren't a few people who got in recently who have stressed household budgets due to their mortgage payments. There are undoubtedly are some (even if bankruptcies and other indicators of household debt stress are at record lows). But again, that is no reason to include house prices in the CPI.

by Squishy | 15th May 21, 12:14pm 1621037660

Good point David. My argument wouldn't be that house prices should be included in CPI, houses aren't typically consumed.

However the inflation metric Reserve Banks track should be more broadly representative than CPI. Bank of England have started to use CPIH.

by J.C. | 15th May 21, 1:26pm 1621041990

My argument wouldn't be that house prices should be included in CPI, houses aren't typically consumed.

Yes, they are consumed. Everyday. Even Adrian Orr said that housing is a 'consumption good'. He said that because most NZers think housing is a savings instrument or speculative investment and he wanted to them to think differently to take the heat off him and his employer. Robbo and Ardern want to have housing as both affordable and to be forever increasing in price. A kind of Never-never Land. That can only be achieved with continued expansion of the money supply and massive income growth. That is their mission.

by Audaxes | 15th May 21, 1:05pm 1621040752

RBNZ claimed - page 7 (13 of 48) PDF - around two thirds of NZ households have no mortgage debt - the debt to income ratio changes dramatically when those without mortgages are excluded. Moreover, given the iniquity of the risk weighted asset regulatory capital scheme, around sixty percent of bank lending is allocated to residential real estate for one third of households.
Can banks justify rising concentration and credit risks by extending mortgage debt to a minority of NZ households and at the same time starve the debt dependent means of production and wages anymore than they already do?

by Antz | 15th May 21, 2:50pm 1621047031

Does anyone know if there is a breakdown of residential mortgage lending by purpose - as in (1) to buy a house vs (2) to finance a business venture and/or secure business lending? I ask because, the largest mortgage I ever had was after I had actually paid off the mortgage to buy a house and was starting a new business - the lending for which I secured against the house as much as I could, because the interest rate for business lending was higher and the max. term was 5 years. Whereas for the portion secured against my house, the interest rate was half that of the business rate (approx.) and the term was up to 30 years. I paid of the business loan ASAP, and shifted all the business lending so that it was secured against my house. All history now, but there must be a proportion of 'residential lending' that is actually 'business lending', for reasons of security/interest rate/term, not to actually buy a house. Is this data captured anywhere?

by printer8 | 15th May 21, 5:23pm 1621056218

Antz
RBNZ data shows that over the past year, just over 1% of both the value and number of residential mortgages lending has been for business purposes. As you point out, to secure a business loan against a residential property makes financial sense although the downside it puts one's residence at risk.
This information is clearly identified in the RBNZ's data set HC31 where "Business purposes" is defined in the accompanying notes as those "commitments made to borrowers in the form of a residential mortgage loan but are intended for business purposes".
https://www.rbnz.govt.nz/statistics/c31
For monthly detail on values and numbers since 2014 refer to Excel data link on that page.

by Audaxes | 15th May 21, 8:02pm 1621065722

The major risk you have created for yourself is the fact residential property mortgage debt has exploded based upon the premise the loan contract purchased by the bank is collaterlised by the house. If a liquidity crisis in the housing market develops into insolvency banks will start selling houses in unison and you will be in receipt of a collateral call or a demand to sell your residence at a fire sale rate.

It's past time we reinstated unsecured loans with strict lending standards.

by KH | 16th May 21, 9:38am 1621114695

I don't think there is any reliable info on use of residential mortgages for business purposes.
I have done that several times and the bank could not have been less interested in the purpose.
As long as you have enough equity to make them feel safe, they don't care.
So what do they record and report. Nothing much.
Further, at times I have had a loan facility and could drag down cash just on internet banking.
Nobody would even know if it was for residence, business, or for a month or two in Tuscany.

by brisket | 15th May 21, 6:00pm 1621058409

Why should the frequency of the purchase disqualify it from inclusion? I don't see the logic of that, when the purchase is so large.

by HouseMouse | 16th May 21, 9:14am 1621113291

Exactly. And they have plenty of infrequent purchases in the CPI basket anyway.
It's a neoliberal sham that house prices aren't there.

by Independent_Observer | 15th May 21, 12:31pm 1621038670

I think if you look at money supply M1-3 its closer to 10% p.a. and asset prices appear to be highly correlated to money supply (i.e. a historical measure of inflation). In many respects, you could argue that we're in a period of very high inflation, or if you look at the recent vertical rises in house prices....approaching the start of hyperinflation. Question becomes, how do we stop it if it doesn't stop rising at the same or similar trend?

by Carlos67 | 15th May 21, 1:47pm 1621043255

Its running at 10% easy Squishy. How can you ever get numbers that reflect what is actually happening on the ground without using the right variables ? Both rent and your mortgage are the single biggest chunks of cash your spending each week. While house prices are increasing at this rate, inflation is going nuts. Heaven help us if interest rates start to rise because inflation will go ballistic.

by Chris-M | 15th May 21, 10:10pm 1621073423

Numbers are good aren't they?
Some inflation numbers for the USA.
The first four monthly inflation figures are in order. 0.2%, 0.4%, 0.6%, 0.8%.
4 month total 2%.
If they manage to hold it at that 4 month figure, annual inflation will be 6%
If they manage to keep the following monthly figures to no more than April, 8.4%
If the following monthly figures continue on the same arithmetic progression, 18.2% inflation.
Any body care to guess where this is headed?
What will the FED do? Let it run or stop printing money and put up interest rates?
What happen in their bond market?
What will happen to their share market?
What will happen to their currency?
What will happen to the, is it trillions, of dollar denominated debt that China and others hold. Sure the USA will pay it back with USA$, they can print as many as they like.
Will any body ever lend them money again?
Will they have to sell most of their productive assets and beg foreign countries to invest in the USA so that they can create real industry that will provide real jobs producing real products so that the USA can work it's way out of the mess.
What will happen to USA politics? Trump?
Hint.
Think Germany after first world war. Argentina, Venezuela, Zimbabwe.
How will the geopolitics with China and Russia pan out
How will this affect us?
What can we do insulate ourselves?

by Independent_Observer | 15th May 21, 12:32pm 1621038774

Trillion dollar coin?

https://en.wikipedia.org/wiki/Trillion-dollar_coin

by Chris-M | 15th May 21, 1:26pm 1621041990

I doubt that it would carry any credibility if it came to that. It's whole concept just illustrates the disconnection from reality and folly of how they are managing their economy.

by Carlos67 | 15th May 21, 2:00pm 1621044000

The problem is Chris the numbers get fudged. Do the people really listen to the numbers put out by governments ? its like listening to the Emperor with no clothes on. Pretty easy for you to do the math at the gas station, the supermarket and wherever else your money is going. How badly your affected really depends on what stage of life your at. If your a FHB trying to save that house deposit your totally rooted, inflation for you is at 20%. For me inflation is like a few percent, I mean my two bottles on milk went up $1 at the gas station so who cares that is a 10% rise ? My money is going into the least affected areas.

by Yankiwi | 15th May 21, 8:51pm 1621068712

Inflation...

Consider the "Big Mac Index"...

In the past 14 months, a Big Mac combo has increased by 18% (currently $11.20, was $9.50 just prior to lockdown at my local maccas). This level of price escalation is the norm, not the exception. Claiming that inflation is in the low single digits is rather amusing...

by Henry_Tull | 16th May 21, 8:06am 1621109172

Yep.
Here is Max & Stacey chatting of the rolling bail out of the banks by Central banks.
https://youtu.be/OMvpfG-Uv-Y

Asserting Central Banks co ordination. That on a net consolidated basis every day since GFC, aggregate Central Bank balance sheet has increased.
Everyday.

by HouseMouse | 16th May 21, 9:17am 1621113459

Yes.
I also notice that in the last year or two many Asian food places have increased prices from say $14 or $15 to $17 for a main dish.
I don't buy into the CPI sham

by Henry_Tull | 16th May 21, 9:01am 1621112470

Here is some context.
Think of covid as a game of 2 halves, NZ getting trashed in the second half.

NZ prospects compared to Australia
The stupidity of Grant Robertsons Wage Freeze comes to mind. - should have stayed in the shed, Stinky too.

https://i.stuff.co.nz/national/politics/125142382/budget-2021-is-new-ze…
The comments are extensive

by HouseMouse | 16th May 21, 9:19am 1621113552

Yes exactly. Brain drain on it's way in key social services. Nice one Grant.

by Independent_Observer | 16th May 21, 10:59am 1621119588

It just seems so insane that as a society we are completely OCD on consumer price inflation - and the narrative that it is the devil and must be keep at 2%, while completely missing the macro view of money supply/asset price/debt creation inflation.

In 20 years time will it be the reserve? Why are we so OCD with one measure of inflation, but completely ignore another. In 2040 will the narrative be 'remember that time that we had CPI of 0% but asset prices/debt/money supply expanding at 20% but it was viewed as great as the asset owning class were becoming wealthy on paper, while creating the conditions required for hyperinflation. How insane must those reserve bankers/monetary/fiscal policy setters have been at that time. It seems mad looking back'.

by Henry_Tull | 16th May 21, 5:13pm 1621142035

Here is a fine example of word salad, plus.
Mis interpret what's been said and then lash out at your own mis interpretation...
Or neat PR....

https://www.odt.co.nz/news/national/deceptive-and-wrong-ng%C4%81i-tahu-…

Ngāi Tahu is rubbishing National Party leader Judith Collins' claim that the iwi wants to co-own the South Island's water infrastructure assets.

"If Judith Collins had bothered to ask Ngāi Tahu about this proposal instead of seeking headlines, she would have the correct facts sooner," said Dr Te Maire Tau, chair of Te Kura Taka Pini (the Ngāi Tahu freshwater group).

"It's deceptive and wrong. She needs to be called out. The tribe does not call for ownership of the assets. The tribe has been discussing co-governance of what will be publicly-owned assets."
....
Earlier today Collins told a party regional conference in Queenstown that the Government wanted to create a regional water entity that would be co-owned by Ngāi Tahu.