Economic week
October 13, 2017
by Nick Clark
On everyone’s mind the big question is who will form the next government but an equally important question is what will its policy programme be.
At the time of writing, we don’t know which coalition of parties will form the next government, but we do know the challenges that New Zealand faces – and what any incoming government will need to address.
The incoming government must address the housing shortage by solving the underlying infrastructure financing problem which is holding back critical infrastructure expansions needed to get houses built. Major upgrades to existing infrastructure are also needed to deal with heavier demand and to improve urban storm-water and wastewater. Making sure councils are able to deal with the infrastructure deficit will be important for any incoming government.
It must avoid knee-jerk responses to perceived problems in immigration. Stopping immigration would be bad for farming and other business and bad for the economy. Improving infrastructure financing and easing the housing crisis would address the main concerns with immigration.
The incoming government must ensure that New Zealand remains open for business as a trading nation. It must remain committed to free trade, including the Trans Pacific Partnership Agreement, and it must remain open to investment. It must demonstrate a commitment to containing the growth in regulation and ensuring that regulation is of high quality and low cost both to administer and to comply with. Turning back the clock in areas like industrial relations would be disastrous.
It also needs to keep its spending under control, maintain surpluses, and continue repaying debt while investing in key infrastructure and better public services. No new taxes please.
For farming specifically, look no further than Federated Farmers 2017 General Election Manifesto. We will be assessing the new government’s programme against the Manifesto’s key deliverables.
Onto the week’s key economic data…
Lower fruit and vegetable prices pushed food prices down 0.2% in September, according to Statistics NZ’s monthly Food Price Index.
Compared to August, vegetable prices were down 7.4% and fruit prices down 0.5%, but both were up slightly once seasonally adjusted. Meat, poultry & fish prices were down 0.2%, although beef (up 1.9%) and sheepmeat (up 4.0%) posted increases. Grocery foods were up 0.9% with bread & cereals up 0.7% but milk, cheese & eggs down 0.2%.
For the year to September 2017, food prices were up 3.0%, mainly due to higher prices for vegetables (up 6.5%) and fruit (up 4.4%) and milk, cheese & eggs (up 6.2). Meat, poultry & fish prices were up 1.4%, with beef down 1.7% and sheepmeat up 14.5%.
Fruit and vegetable price increases are a legacy of poor autumn weather reducing production restricting supply, although the annual increases are easing back after peaking in May. Dairy and sheepmeat price increases reflect commodity price increases flowing into domestic prices. As an example, butter prices were up 59.5% for the year, not dissimilar to the Global Dairy Trade’s annual increase for butter.
Retail spending was flat in September, according to Statistics NZ’s monthly Electronic Card Transactions. Spending was up 0.1% in September 2017 compared with August 2017, with spending down for durables (e.g., appliances and furniture), apparel, hospitality and vehicles but spending up for consumables (e.g., food and liquor) and fuel.
On a quarterly basis spending was down 0.1% for the September quarter compared to the June quarter and up 3.1% comparing the September 2017 quarter with the September 2016 quarter.
House prices increased in September but sales volumes remain down, according to the Real Estate Institute’s monthly Residential Market Statistics. Median residential property prices across New Zealand have increased by 1.2% year-on-year to $525,000, with Auckland median price flat on $845,000 and national ex-Auckland up 5.7% to $428,000.
Annual house sales volumes were down 26.2% nationally, with Auckland down 31.5% and national ex-Auckland down 23.7%. Compared to September 2016 days to sell also increased from 31 to 34.
REINZ cited wet weather and election uncertainty for the slow start to spring.
Finally, consumer confidence dipped slightly in October but remains strong, according to the monthly ANZ-Roy Morgan Consumer Confidence Survey. ANZ observed that neither the softer housing market nor election uncertainty have so far dented consumer optimism, which points to an ongoing decent pace of spending and activity growth.
Next week sees the release of September quarter Consumer Price Index. It’s likely to remain below 2%. And by then we will must surely know the make-up of the next government and its likely policy programme.
Exchange Rates
NZ Dollar versus
|
This Week (12/10/17)
|
Last Week (5/10/17)
|
Last Month (12/10/17)
|
Last Year (12/10/16)
|
US Dollar
|
0.7095
|
0.7161
|
0.7242
|
0.7067
|
Australian Dollar
|
0.9092
|
0.9138
|
0.9047
|
0.9349
|
Euro
|
0.6002
|
0.6092
|
0.6058
|
0.6398
|
UK Pound
|
0.5358
|
0.5413
|
0.5497
|
0.5763
|
Japanese Yen
|
79.68
|
80.73
|
79.19
|
73.20
|
Chinese Renmimbi
|
4.6722
|
4.7569
|
4.7384
|
4.7451
|
Trade Weighted Index
|
74.84
|
75.76
|
75.57
|
76.04
|
Source: Reserve Bank of NZ
Wholesale Interest Rates
|
This Week (12/10/17)
|
Last Week (5/10/17)
|
Last Month (12/10/17)
|
Last Year (12/10/16)
|
OCR
|
1.75%
|
1.75%
|
1.75%
|
2.00%
|
90 Day Bank Bill
|
1.93%
|
1.93%
|
1.94%
|
2.15%
|
10 Year Government Bond
|
2.98%
|
2.97%
|
2.82%
|
2.50%
|