By Bernard Hickey
It was the best of times. It was the worst of times.
The New Zealand dollar jumped to post-float highs this week against the British pound and the Japanese yen. It also rose to a 3 and a half year high against the Australian dollar.
On a Trade Weighted basis, the Kiwi dollar broke through its July 24, 2007 high. It's a wonderful time to be an importer.
This strong New Zealand dollar means it costs a lot less in New Zealand dollars to buy a car, a flat screen television or an iPad. It's a fantastic time to go on holiday.
It means you can travel for longer, stay in fancier hotels and buy more souvenirs to clog up the closet.
It's also a time for consumers to be cautious and just a little bit ruthless.
One big risk in times like this when the currency is high is that importers and retailers keep their prices at the same levels as when the New Zealand dollar was lower. That means the wholesaler, importer and/or the retailer essentially pocket the price reduction on the way through.
That's why consumers need to be especially vigilant and demanding.
They should know where the imported good was imported from and how much the New Zealand dollar has risen in recent months.
Remember that most importers and wholesalers will order items months in advance. If there has been a big rise in the currency in the meantime some will not benefit because they paid in advance or hedged.
Others will be able to sell at the same New Zealand dollar price, but pay much less in the base currency of the imported good. Some will genuinely be able to say they had already paid at the depressed rate months ago and are not pocketing the difference.
Whatever the case, with just-in-time inventory systems and air freight that delay is rapidly telescoping down to not much.
Certainly ask the retailer when they actually paid the wholesale price. If in doubt, simply demand a price cut now, using the currency's rise as your ammunition.
For your information for your shopping trip this afternoon, in the last 6 months the New Zealand dollar has risen 6% against the US dollar (which also means for Chinese imports given the US$ is the main currency used in trade with China), 9.2% vs the pound, is flat vs the euro and is up a stonking 25% against the yen.
That means push the hardest on Japanese made items, especially the used imported cars.
This currency strength is of course painful for exporters and those who compete with imports. It is costing thousands of jobs.
However, consumers who follow the signals being sent by the currency will buy imports rather than locally made items, or outsource production or services that were being made here.
The high currency is great in the short term for consumers, just as long as they have a job and income, or a very good line of credit.
Buy now and pay later - it's the Kiwi dollar way.
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This article first appeared in the Herald on Sunday. It is used here with permission.
17 Comments
Looks like deflation has arrived in the EU.
http://theautomaticearth.com/Finance/deflation-arrives-in-the-eurozone…
regards
Even simpler, look where crude has been going in the last few months (up)
Look at that 1y year graph, roughly 10% up since December, so $2 to $2.20 seems OK, though I had a 40cents of voucher yesterday....so I paid $1.79.x
:D
regards
The NZ Govt already own 50% of Z Energy.
They should buy the other shareholder, Infratil, 50% holdings out.
Providing the Govt could resist the temptation to price gouge, there is no reason that NZ residents couldn't be provided with a petrol at a price based on prevailing crude / exchange rates.
The remaining energy companies, BP, Mobil etc would then have some real competition.
The same theme could be applied to retail banking, I had hopes that Kiwibank would be used in this manner, but didn't work out that way though.
I think Kiwibank is doing more than you think - remember the days of monthly account fees, EFTPOS fees, etc - they almost all disappeared as soon as Kiwibank arrived.
Kiwimarket is the one I would like to see - a government owned supermarket chain. It should be run similar to Kiwibank with an objective to make a reasonable return (say 5%) on the governments investment. If the current market was efficient and competitive, Kiwimarket should not be able to compete, but we all know that is not the case.
Kiwimobile, Kiwifuel, Kiwibuild, anything that is not competitive in NZ. But I would want to see them run as proper businesses and without government interference except for setting required profit margins (e.g. Kiwibuild should be building more houses to increase the supply in the market, but they should be sold at market prices and to anyone not just first home buyers).
I don't think this is deflation. Its just the opening shots in 'the currency wars' One we wont win.
I can get a bigger TV for my money, I'll buy the next model up car, but I don't call that deflation.
Deflation is what Japan has been, in a long term trend of decreasing asset values. The question is why buy today, its going to be cheaper tomorrow, next week, next year and in a decade.
Deflation is when the value of your buying power with a dollar increases, and you want to pay your debt down as fast as possible, those dollars will be harder to earn next year.
Deflation will see a decrease in the money supply as everyone rushs to pay back debtand big problems for countries like us with a lot of debt not tied to production.
>>>
With no corresponding human or physical assets by which economic growth can
repay the debt."
>>>
If deposits come after a loan which makes sense. Then my deposit is the dairy farmer that purchased my farms loan, is it as good as his promise to pay? Because if it is, its time my money left NZ because I don't see him paying it back in a deflationary environment.
Watch the G20 try to ' hose down the currency wars'
Agreed Andrew, this isn't deflation. Deflation is a collapse in monetary supply and that's not happening.Credit did collapse but is now recovering, but either way, massive central bank money printing has filled the gap all though the GFC when, if it was ever going to happen, it would have happened then. Does no one worry that even in that situation we still had inflation ?
God help us if they mismanage the extraction of that money when velociity finally picks up otherwise it certainly won't be deflation that we'll be worried about.
No deflation is simple, its the collapse in prices. Even if you increase money supply in a zero bound trap and if you dont do enough you get deflation....which is what we are witnessing and that has been promised by Keynes model for 4 or 5 years, v the austrian model the proponents of which have been screaming hypre-infaltion...and gold at 5000...
If you really want to be pedantic gold is dropping in price I believe (<1600?) only to be proped up by the Central banks....which is interesting in itself...
Had inflation? look at the charts, negiligable and in fact the trend showed dis-inflation, which Govns around the world ignored.
After a second greater depression has kicked us flat for a decade or 2, sure maybe we'll see inflation....I'd worry about us surviving th enext decade myself.
regards
Simple soul that I am , Bernard , I am seriously confused by that headline ......
.... " it's time for consumers ( with jobs ) to be cautious and ruthless " ........
So you're implying that consumers without jobs can afford to be reckless and profligate ? ...... that is so bizarre , big guy !.
.... " cautious and ruthless " is an incompatible concept isn't it , sort of akin to being an introverted Somalian pirate !
Australia has been having a parliamentary enquiry, summoning e major software producing companies to ask why, given the appreciation in the Australian dollar vs. U.S. for many years, software prices in Australia are so much higher (particularly when in many cases it is a download from the same network that is being paid for).
http://www.theregister.co.uk/2013/02/11/australia_summons_apple_microso…
The National Party will go out of power next year. Because it has forgotten its consituency is New Zealanders and our interest is in Jobs and incomes.
New Zealanders are being screwed with prices which are in the main due to the rapacious big companies. Banks, Power, Cars. You name it. It's cheaper elsewhere. Two super market chains only. Ridiculous. We have been bolied like the frog. Our cash is flowing overseas at an alarming rate.
It these costs were reduced to where they should be. And the money was retained here and in New Zealanders pockets - then that extra spending power would flow into the economy with a real good effect.
If my company paid less for vehicles, power, IT and all the little things. And our suppliers paid less for similar. There would be a lot more disposible cash about. And a better nation we would be.
So Yes Bernard. Japanese cars should be cheaper. Along with a lot of things. If the Government stuck to it's knitting and looked at New Zealand realities and dealt with some, then we would be better off. So a new government in 2014. Which will inevitably do even worse.
We thought my daughter had broken her arm. We went to the local hospital, they sent us for an x-ray, got the bill today. $28.00 for two photos.
Hell, I was expecting hundreds after all the horror stories of medical costs in the USA, but that was cheaper than home.
Sorry to disappoint you KH but I can't see National losing the next election and maybe even beyond... Key continues to appeal to the public following a recent poll rise that they are doing "things" to boost the economy. i admire how vague he can be sometimes.
In reality most Kiwis enjoy the cheaper products (those who can afford them that is) and believe that is a sign of growing economy. Even if taken out on interest (cough) free loans.
I believe more New Zealander's have become less affected by high unemployment, child poverty, mass exodus of young Kiwis etc due to their own appropriation of wealth. Call me a synic but the fact they can now afford the next upgrade to their SUV is of significant importance to the NZ consumer rather than the disintegration of the country.
I agree that if our Governments past and present had retained more of our assets we would be more self sufficient and less prone to overseas markets but then some people wouldn't become ridiculously rich as a result.
And that is why John Key and national will remain in power.
I remember looking up the price of a new Audi in the UK recently, not because I wanted to buy one, just because I saw the advertised price here and couldn't believe it was that much with our high exchange rate. Sure enough it was about 40% cheaper in the UK taking the exchange rate into account (and they have a higher VAT than us). Granted they probably sell a lot more over there and it isn't as far to ship them, but 40% is a bit OTT.
I had an offer from the local Ford dealer up here (in Brisbane) for a brand new Ford Focus 1.6 auto for $19,995 all up, incl stamp duty, road tax and other fees. And he even throw in finance at 2.5% interest for 4 years. That's roughly $24,000 in NZD (without the stamp duty), the same model is selling in the 30K mark on Trademe. Someone is making a killing!
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