90 seconds at 9 am: Online sales stunt inflation

US inflation low, held in check by online sales; US real pay rises; Singapore changes currency policy; UST 10yr yield 1.80%; oil unchanged, gold drops; NZ$1 = 68.7 US¢, TWI-5 = 71.7

15th Apr 16, 7:24am by David Chaston

Here's my summary of the key events overnight that affect New Zealand, with news Singapore changed a policy yesterday that resonated in currency markets.

But first, consumer prices in the US rose in March for the first time in four months, but the very modest gain only shows how low inflation pressure is in their economy. It also confirms the cautious Fed stance, removing price pressure as a reason to raise interest rates in the near term.

On reason inflation is stubbornly low is the shift to retailing online. A new Adobe data resource shows just how effective buying online restrains prices. These reductions on costs in the retail sales channel are flowing directly through to consumers.

But the low inflation data is helping underpin real wage gains, which in the US have risen +1.4% after inflation year-on-year. And American jobless claims fell to their lowest absolute level since 1973 last week. The US economy has a labour market that is expanding with real wage gains and virtually no inflation. The New Zealand economy exhibits similar, even slightly better attributes. It is a good time for workers.

Singapore’s central bank yesterday unexpectedly eased its monetary stance, adopting a policy last used during the GFC, as economic growth there has virtually stopped cold. They announced they would target a 0% appreciation in their exchange rate. Previously the policy was "a moderate and gradual appreciation path". That change caused their currency to drop sharply and in turn that dragged down currencies across the region, including our own.

In New York the benchmark UST 10yr yield is higher today at 1.80%.

The oil price is unchanged. It is still just under US$42/barrel in the US, while Brent is now just over US$44/barrel

The gold price is sharply lower however at US$1,226/oz. That's a $21/oz fall on the day.

And finally, the NZ dollar starts today at 68.7 US¢, at 89.1 AU¢, and at 61 euro cents. The TWI-5 index is now at 71.7 and still tracking within that fairly tight range.

If you want to catch up with all the local changes yesterday, we have an update here.

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

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Source: RBNZ

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12 Comments

by Stephen Hulme | 15th Apr 16, 8:17am 1460665034

BlackRock chief Larry Fink said Thursday that negative and low interest rates around the world are crushing savers, and those policies are "going to become the biggest crisis globally." Read more

by sharetrader | 15th Apr 16, 10:16am 1460672218

People will now be staying in the workforce longer,

by Henry_Tull | 15th Apr 16, 9:11am 1460668262

Issues of trust and appropriate behavior. Its more than being busy.

A decade of research shows how culture seeps into economic decisions.

http://insight.kellogg.northwestern.edu/article/economic-growth-a-quest…

The economic implications of low trust can be vast. “Trust is quintessentially one of the most important ingredients in economic transactions,” says Sapienza. Sure, we can—and should—write contracts. But no contract will cover every contingency. “You have to trust the person you’re negotiating with that eventually we’re going to work together to work things out,” says Sapienza. “While trust is fundamental to all trade and investment, it is particularly important in financial markets, where people part with their money in exchange for promises.”

by Stephen L | 15th Apr 16, 9:58am 1460671101

I agree with Fink.
He also notes that governments should now be doing the heavy lifting, ideally on infrastructure. In the US, whether that missed opportunity is Congress or the President's fault, you could debate.
Here there has been some activity with Christchurch (albeit funded by earthquake insurance, and not all that well done apparently) and some roads. But the government has missed any kind of bold opportunity, while its funding models are based on very old paradigms, and costing taxpayers a fortune. E.g. Transmission Gully has apparently a tendered cost for building and 25 years of maintenance of $850 million. Someone in Treasury or government agreed to pay 3rd parties $125 million a year for 25 years to fund that, stating that the two amounts were equivalent. So we are paying $3.1 billion for an $850 million road. The discount rate or IRR for the amounts to be equivalent is 15%, when government borrowing rates are 2-3%. Even at say a 5% discount rate, we are overpaying by an extra $850 million. I.e. with even moderately conservative funding we could have had 2 Transmission Gullys for what Treasury and Bill English think is a good price for one.

by sharetrader | 15th Apr 16, 10:21am 1460672484

PP's are are flawed concept for infrastruture, we also run with the cheapest model to build anything not the most cost effective model over 100 years like germany another flawed model that costs us all in the long run.

by Stephen Hulme | 15th Apr 16, 12:52pm 1460681563

Despicable third world behaviour and more so because the Australian project manager, Leighton Holdings will siphon significant sums back to Australia.

New Zealand's poor will pay as they do in the UK. Read more

by ObeseBallerina | 18th Apr 16, 7:38pm 1460965099

And high rates were crushing borrowers before. Swings and roundabouts.

by Stephen Hulme | 15th Apr 16, 8:46am 1460666802

Perhaps the FOMC should consider this explanation of why US household spending continues to dwindle (as rising inflation on core purchases continues to eat away at the US household's purchasing power) when deciding whether "global events" are enough to offset what are now clearly rapidly rising core inflation pressures. Read more

by Boatman | 15th Apr 16, 10:29am 1460672970

Fink is on the money, our personal life savings are worthless in terms of interest income , and withholding tax taking a quarter off it , its absolutely not worth holding cash at all

But I don't know what to do with the money instead , asset prices have bubbled to the point dividend yields are too low .

I don't understand Bonds , so it just leaves property as an investment class

by head_down_bum_up | 15th Apr 16, 11:40am 1460677235

Spend it and borrow more! (sarcasm)

by Stephen Hulme | 15th Apr 16, 12:53pm 1460681610

On reason inflation is stubbornly low is the shift to retailing online. A new Adobe data resource shows just how effective buying online restrains prices. These reductions on costs in the retail sales channel are flowing directly through to consumers.

Is that factor behind the collapse in forecourt automobile sales or is it a matter of finance?

Inventories of all kinds of vehicles have piled up especially on the wholesale level, leaving channels stuffed to a degree not seen since the worst of the Great Recession. Read more

by Boatman | 15th Apr 16, 12:19pm 1460679572

Its true with regards to motor vehicles , you can get a brand new Toyota Landcruiser 200 series direct online from a wholesaler in Japan for much less than the $100k you pay in Auckland for the same vehicle