Economic Week - November 8

by Nick Clark

GDT Jumps
Dairy prices posted a strong increase in this week’s Global Dairy Trade auction, lifting 3.7% overall, amid news of slowing growth in domestic milk supply and constrained global supply.
Most commodities on offer posted rises, with whole milk powder up 3.6%, skim milk powder up 6.7%, anhydrous milk fat up 2.6%, butter up 0.2%, butter milk powder up 5.4%, and rennet casein up 5.1%.  The exceptions were cheddar (down 0.2%) and lactose (down 1.9%).

The average selling price was $3,446 and 38,681 tonnes of product were sold.
The GDT Price index is 20.0% higher than at the same time last year although it is still 3.1% below its more recent peak six months ago.

Commodity Prices Up
The ANZ World Commodity Price Index lifted 1.2% in the month of October, with most commodities posting rises.
Dairy prices recovered most of September’s small decline, edging up 0.4% in October, while meat and fibre prices increased 3.3%. Lamb prices lifted 3.2% to reach a new record, while beef prices lifted 4.5%. Horticulture (up 1.7%) and forestry (up 0.4%) also posted monthly rises.  Aluminium prices fell though.
On an annual basis the World Price Index was 7.2% higher than in October 2018, with dairy and meat being the main growth drivers.
With the exchange rate easing a little in October, the NZ Dollar Index lifted 1.5% for the month to be up 9.7% compared to a year ago.

Unemployment rises but wages up
Unemployment rose as employment growth fell, according to Statistics NZ’s Labour Market Statistics for the September 2019 quarter.
Unemployment rose by 7,000 to 115,000, with the unemployment rate rising from 3.9% in June to 4.2% in September.
The number of people employed was up just 6,000 (up 0.2%) during the quarter, with annual growth of employment of 23,000 (up 0.9%) for the year to September 2019, down from 37,000 (up 1.4%) for the year to June 2019.  The annual increase of 23,000 also pales compared to those for the years to September 2016 (135,000), September 2017 (88,000), and September 2018 (60,000).
Although employment growth has slowed, the labour force participation rate and the employment rate both remained relatively strong at 70.4% and 67.5% respectively.
Wage inflation, measured by the Labour Cost Index, is increasing.  Private sector wages lifted 0.6% during the quarter, pushing its annual growth rate up to 2.3%. Public sector wages rose more strongly on the back of settlements of collective agreements, up 1.4% for the quarter and up 3.0% for the year.
The 2.4% annual increase in the Labour Cost Index was the fastest in more than a decade and well ahead of the 1.5% annual rate of inflation.

Banking Survey
The Federated Farmers November 2019 Banking Survey is open for responses, with the survey closing on Monday.  Many thanks to the more than 600 farmers who have so far responded.

Next week – the OCR
On Wednesday the Reserve Bank will be issuing its latest quarterly Monetary Policy Statement and will review the Official Cash Rate.  What will it do?
These days the Reserve Bank has a dual mandate of price stability and employment maximisation.  Recent data for both is a bit mixed.  Inflation at 1.5% is still below the Reserve Bank’s 1-3% target midpoint of 2%, but in the September quarter inflation showed some signs of reviving.  This week’s labour market data showed a continued softening in employment growth and a rise unemployment but also showed continued high rates of participation and an acceleration in wage growth. 
This mixed picture for inflation and employment has led a few commentators to suggest the Reserve Bank should hold fire but on balance most money is still on a cut to the OCR of either 25 or 50 basis points.  The latter would leave the OCR sitting at just 0.5%, giving the Reserve Bank little room to move further if the economy continues to slow.

NIWA Soil Moisture Data
NIWA’s latest soil moisture maps (as at 9am Thursday 7 November) show the country drying out somewhat with more areas getting dryer than usual for this time of year, especially in the top half of the North Island.

Exchange Rates

Overall, the NZ Dollar was down against the TWI and down against all of our major trading partners, except the Euro which was unchanged.



NZ Dollar versus

This Week


Last Week (31/10/19)

Last Month (7/10/19)

Last Year (7/11/18)

US Dollar





Australian Dollar










UK Pound





Japanese Yen





Chinese Renminbi





Trade Weighted Index





Source: Reserve Bank of NZ


Wholesale Interest Rates

Over the course of the week 90 Day Bank Bill interest rate rose 3 basis points while the rate for 10 Year Government Bonds rose 4 basis points (and is up 33 basis points over past month).  The OCR is reviewed next Wednesday.



This Week


Last Week (31/10/19)

Last Month (7/10/19)

Last Year (7/11/18)






90 Day Bank Bill





10 Year Government Bond





Source: Reserve Bank of NZ