Economic Week - March 9

 by Nick Clark

Commodity prices rise

The ANZ Commodity Price Index rose 2.8% in February, building on January’s 0.7% gain.  Dairy prices were up 6.0% for the month while meat and fibre prices were up 1.6%, thanks mainly to gains for beef and wool.  Lamb prices moderated off recent highs.
Despite some volatility within the month, the NZ Dollar ended February broadly steady against major trading partners, up 0.3% compared to January.  This resulted in the NZD Commodity Price Index lifting 2.4%.
Compared to February 2017, world prices were up 5.0% and NZD prices were up 6.4%.

Dairy prices slip

The Global Dairy Trade recorded a fall in this week’s event, with the GDT Price Index slipping 0.6% from the last auction a fortnight ago.
Prices were mixed with three of the seven commodities increasing and four decreasing.  Among those decreasing was whole milk powder, the biggest seller by volume, down 0.8%.
Overall, the average selling price was $US3,593 and 19,292 tonnes were sold.
This was the second consecutive fall in the GDT although it remains 9.8% higher than the same time last year. 

Government accounts ahead of forecast

Higher-than-expected tax revenue from PAYE and GST has boosted the Government’s fiscal position, according to its financial statements for the seven months to January 2018.  
The operating balance before gains and losses was $677 million above forecast at a surplus of $2.4 billion. This was driven by core Crown tax revenue coming in $937 million above forecast at $44.8 billion. Core Crown expenses were $155 million above forecast as some expenditure was recognised earlier than expected.
Net debt at 21.6% of GDP was below the 22.0% forecast.

 

Tax Working Group underway

Looking ahead the Government’s Tax Working Group has started work. Federated Farmers is currently surveying its members on what they think about the possible options.  Several hundred have already responded which shows just how interested farmers are about tax!

 Rates up

Local government rates increased by 5.2% in the December 2017 quarter compared to the December 2016 quarter, according to Statistics NZ’s Local Authority Statistics.  Over the same period regulatory income and petrol tax was up 3.5%, subsidies and grants was up 12.2%, and investment income was up 98.3% (mainly due to dividends which can be very volatile).  Combined, these resulted in a 10.0% increase in total local operating income.
Meanwhile total operating expenditure was up 6.0% and the sector’s operating deficit narrowed from $133 million in December 2016 to $49 million in December 2017.
Councils are now commencing or about to commence their long-term plan consultations which will set spending plans for the coming decade and how they will be funded.  Federated Farmers will be submitting to most of New Zealand’s 78 councils pushing them to focus on efficiently performing their core activities and keeping the rates burden down for farmers.

 

Farm buildings

After dipping in 2015 and 2016 the value of farm buildings constructed recovered somewhat in 2017.  Statistics NZ’s December quarter Value of Building Work Put in Place showed that for the year ended December 2017, the value of farm buildings constructed was $318 million, up 12.7% on 2016’s $282 million.  It was still well below 2014’s $357 million though.
Overall, for the year ended December 2017, $21.2 billion worth of buildings were constructed, up 6.8% on the previous year.

 NIWA Soil Moisture Data

NIWA’s latest soil moisture maps (as at 9am Wednesday 7 March) show the impact of recent heavy rains.  Soils in many parts of the country are significantly wetter than usual.  Gisborne-Wairoa, Hawkes Bay, and south-eastern Southland are the main exceptions.

 

Exchange Rates

NZ Dollar versus

This Week

(7/3/18)

Last Week (1/3/18)

Last Month (8/2/18)

Last Year (8/3/17)

US Dollar

0.7286

0.7197

0.7212

0.6964

Australian Dollar

0.9358

0.9299

0.9222

0.9171

Euro

0.5867

0.5905

0.5878

0.6588

UK Pound

0.5243

0.5234

0.5195

0.5705

Japanese Yen

76.98

76.80

78.85

79.30

Chinese Renmimbi

4.6197

4.5568

4.5144

4.8040

Trade Weighted Index

74.98

74.42

74.22

76.38

Source: Reserve Bank of NZ

 

Wholesale Interest Rates

 

This Week

(7/3/18)

Last Week (1/3/18)

Last Month (8/2/18)

Last Year (8/3/17)

OCR

1.75%

1.75%

1.75%

1.75%

90 Day Bank Bill

1.90%

1.92%

1.90%

1.98%

10 Year Government Bond

3.06%

2.94%

2.98%

3.34%

Source: Reserve Bank of NZ