Economic week

July 21, 2017
by Nick Clark
Inflation has surprised on the downside, with Statistics NZ’s quarterly Consumer Price Index unchanged for the June 2017 quarter.  

Deflationary pressure was applied by the transport group, down 1.3 percent, thanks largely to lower petrol prices and lower domestic airfares.  On the other hand, the food group was up 0.7 percent, due to bad autumn weather pushing up vegetable prices, and the housing and household utilities group was up 0.8 percent, mainly due to higher prices to build a new house.

With the quarterly CPI flat, the annual rate of inflation came in at 1.7 percent, a drop from the March quarter’s 2.2 percent.  Housing and household utilities was up 3.1 percent and food was up 2.0 percent. The communications group was down 4.6 percent, due to lower telecommunications prices. 

Most economists, including within the Reserve Bank, had picked there would be a slowdown in inflation, but few predicted it to be unchanged for the quarter and that the annual rate would ease back as much as it did.

Any move to begin increasing the OCR now seems further off.

Dairy prices edged up ever so slightly in this week’s Global Dairy Trade auction, with the GDT price index up 0.2 percent.

Whole milk powder, which comprises around half the total volume traded and a key determinant of the farmgate milk price, was up 0.3 percent.  Butter also continued its strong run, up 3.4 percent and breaking through $US6,000 per tonne, and cheese was also up 1.6 percent.  Skim milk powder though was down 3.2 percent, with there being large stockpiles in Europe.

Overall, the average winning price was $US3,387 per tonne and 26,688 tonnes were sold.  Although the GDT price index is only around the same level as it was in early December 2016, it is 56 percent higher than the same time last year (an indication of just how much prices rose in the second half of 2016).

Farm sales volumes and prices have slipped as we move into winter. The Real Estate Institute of NZ’s latest Rural Property Statistics showed there were 459 farm sales for the three months ended June 2017.  This was down 2.8 percent on the same three-month period in 2016.  However, for the full year ended June 2017 farm sales were up 2.6 percent (to 1,784 farm sales) compared to the year ended June 2016.

Turning to prices, the median selling price per hectare for the three months ended June 2017 was $25,993, down 1.4 percent on the same three-month period last year.  The median price does not adjust for differences in farm size, location and faring type so it is not the best indicator of price movements.  

The REINZ All Farm Price Index does adjust for these factors and it was up 4.9 percent compared to the three months ended June 2016 (but was down 2.5 percent compared to the three months ended May 2017).  

Exchange Rates

Source: Reserve Bank of NZ

Wholesale Interest Rates

Source: Reserve Bank of NZ