Economic week

January 19, 2017
by Nick Clark
General Manager Policy

Dairy prices edged up slightly in this week’s Global Dairy Trade auction, with the GDT Price Index up 0.6 percent.  
There were falls for the two biggest commodities by volume, whole milk powder (down 0.1 percent) and skim milk powder (down 1.6 percent), but anhydrous milk fat (up 3.7 percent), butter (up 1.6 percent) and cheddar (up 1.3 percent) all posted increases.  Overall the average selling price was $US3,517 and 22,030 tonnes were sold.

Food prices fell 0.8 percent in December, according to Statistics NZ’s monthly Food Price Index. Lower food prices were seen across most food items, with non-alcoholic beverages falling 3.1 percent and meat, poultry and fish prices down 1.5 percent. After seasonal adjustment, food prices fell 0.5 percent. On an annual basis food prices increased by 0.6 percent for the year to December 2016, led by vegetables (up 5.4 percent), beef (up 4.7 percent) and fresh milk (up 6.1 percent).  Fruit prices were down 7.9 percent.

Next week sees the release of the December quarter Consumer Price Index.  Although the quarterly increase is likely to be modest (around 0.3 percent) the annual rate should rise to over 1 percent due to earlier reductions in petrol prices dropping out of the annual rate.  This won’t overly perturb the Reserve Bank which is forecasting an increase in inflation this year closer to the mid-point of its 1-3 percent target.

Also, next week Reserve Bank Governor Graeme Wheeler will give his first speech for 2017 at a function put on by the Canterbury Employers Chamber of Commerce.  He will discuss factors affecting New Zealand’s economy from both a domestic and international perspective, as well as developments affecting the financial system.  His speech will be picked over by economists and financial markets as the next OCR review draw closer (9 February). 

House prices meanwhile rose on falling sales volumes, according to the Real Estate Institute’s latest monthly Residential Statistics. Comparing December 2016 to December 2015 the national median sales price was $516,000, up 11 percent, while there were 6,533 house sales, down 11 percent.  Auckland house price inflation appears to be moderating (to an annual rate of 9 percent) but new median price records were set in several regions, including Wellington where prices were up 22 percent for the year.

Another indicator of business confidence released this week suggests good economic times will continue – at least for the domestic economy.  NZIER’s Quarterly Survey of Business Opinion for December showed a net 26 percent of respondents expecting economic conditions to improve, unchanged from the September survey.   Although the survey doesn’t include agricultural respondents, improved confidence from higher dairy prices was reflected in the results for rural regions.

The QSBO’s indicator for capacity utilisation was strong at 92.7 percent with more firms reporting capacity to be a constraint and also more expecting to increase their prices.  The QSBO is well regarded and it is watched closely by policy makers, including the Reserve Bank

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