Annual inflation has remained at 7.2% in the December quarter, which is slightly higher than average forecasts, but there's evidence in the figures that the rate may be slowing.
Crucially, the domestically generated inflation, the so-called 'non-tradeable' inflation, remained unchanged also - at 6.6% against expectations that it would rise.
It's the domestic generation that the Reserve Bank can target with increases in the Official Cash Rate. The RBNZ had been forecasting a domestic inflation rate of 7% as of December and an overall rate of 7.5%. And based on these forecasts it had been pointing toward a further 75-point rise in the OCR when this is next review on February 22.
However, the actual figures released on Wednesday may well lead to increased market speculation that the RBNZ could and should now look at a lower increase - probably 50 points in the next review.
And right on cue, economists at the country's largest bank ANZ have changed their call and now pick just a 50 point rise (previously 75 points) next month and they now see the OCR hitting a peak of just 5.25% against their earlier forecast of 5.75%.
ANZ economist Finn Robinson and chief economist Sharon Zollner said inflation is still far beyond the RBNZ’s target band.
"But it is clear that overall inflation pressures are not as severe as the RBNZ feared at the time of the super-hawkish November Monetary Policy Statement, despite the additional domestic demand created by the revival of international tourism over the 2022-23 summer.
"Accordingly, the RBNZ now has the luxury of responding in the usual fashion to weakening activity data, reining in its hawkishness to some degree."
Kiwibank economists, who had previously questioned the need for the RBNZ to raise the OCR as high as it has signalled, were also quick to suggest that next month's OCR rise should be just a 50-pointer and with a peak of 5%.
"We are seeing the peak in inflation now. And the outlook for inflation, both offshore and onshore, is improving. The world war on inflation is being won," chief economist Jarrod Kerr said.
"We now expect the RBNZ to deliver a 50bp hike in February, a step back from the outsized (catch up style) 75bp signalled. We have seen more than enough to justify a reduction in the pace and extent of future rate rises. Enough is enough. A move to 5.5% is likely to be a step too far. We expect a move to 5%. Rates markets should react," he said
In terms of the nitty gritty, Stats NZ says inflation for the December 2022 quarter came in at 1.4%, giving an annual rate at the end of the year of 7.2%. The annual rate is unchanged from the September quarter.
The annual rate compares with an average market expectation of 7.1%, although there was quite a disparity between economists' picks on this occasion, highlighting the current volatility. Previously, the annual inflation rate hit a 32-year high of 7.3% for the June quarter of 2022 before dropping oh, so slightly to 7.2% as at the September quarter.
As said further up the article, the RBNZ, which is driving up interest rates to try to get inflation back somewhere near its 1%-3% target range, had picked 7.5% and had signalled the likelihood of another 75-point rise to the Official Cash Rate at the next review on February 22 - which would match the 75-point rise at the last review in November that took the OCR up to 4.25%. The RBNZ's indicated the OCR may peak at 5.5% in the middle of this year.
Stats NZ said non-tradeable inflation was 6.6% (unchanged from September) in the 12 months to December 2022 driven by higher prices for the construction of a new house.
Tradeable inflation was 8.2% (up from 8.1% in September), driven by higher prices for international airfares.
Non-tradeable inflation measures goods and services that do not face foreign competition, and is an indicator of domestic demand and supply conditions. However, the inputs of these goods and services can be influenced by foreign competition.
In terms of the overall inflation figures Stats NZ said housing and household utilities was the largest contributor to the December 2022 annual inflation rate. This was due to rising prices for both constructing and renting housing.
Prices for building a new house increased 14% in the 12 months to December 2022, following a 17% increase in the 12 months to September.
“Respondents reported more expensive materials and higher labour costs are driving the increase of building a new home,” Stats NZ consumer prices senior manager Nicola Growden said.
The increases in costs of building a new house are gradually starting to slow, however. Earlier in 2022 the annual rate of increase was running at over 18%.
Consumer prices index
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162 Comments
Genesis Energy today advised me that my daily charge will increase 100% in March, with an equal $ increase each year to 2027. The daily charge is now normally~25% of my bill so it will soon exceed the power consumption component. Obviously moving energy from a mostly variable to a mostly fixed cost will benefit the company far more than the consumer.
They blame the Govt changing regulations removing the requirement for retailers to offer a low daily charge option.
Frank Energy, which is owned by Genesis also doubled their daily rate and also raised the unit rate. This change I thought was supposed to bring the unit rate down slightly but that didn't happen. I understand they aren't required to increase the daily rate to consumers, and some power providers haven't increased it.
Obviously moving energy from a mostly variable to a mostly fixed cost will benefit the company far more than the consumer. None of the energy portion of your invoice will have been moved to a fixed cost. i.e you don't get any Kwh for your fixed costs.
What you do get for your fixed daily fee, is the ability to turn on your heater and oven at 6pm on the coldest evening in winter. The grid needs to be built so that all consumers can access electricity at that peak time.
Think of it like the road network where someone doesn't use their car much. But they like to go away on a Friday evening heading into a long weekend and they want the road to be built with enough lanes so that they don't get held up. They need to contribute to having enough lanes because they chose to drive at peak times even though overall they don't drive all that much. Apply the same logic to the electricity grid and you can see the flaws in the lower user scheme.
You appear to have misunderstood my comment, I never said that energy consumption would be more fixed, I said the energy bill would become more fixed than variable.
When the energy companies were privatised by Bradford, their first act was to change the depreciation charge on assets NZdrs had built & paid for over generations from historical cost to replacement value: thereby increasing their profitability massively an accounting keyboard stroke. You might wish to compare this tax deduction with the energy infrastructure investment since.
Nau Mai Ra is a new energy provider that does not have a daily fixed charge, but does offer a slightly higher fixed rate for each kWh used. When you crunch the numbers they end up coming out cheaper. You also get the opportunity to decide where they donate a portion of their profits in your local rohe. It remains to be seen how they cope with spot pricing over winter. I’m not switching from powershop as yet, but probably will after winter if feedback from whanau who are with NMR is positive.
I agree. I tried to put our situation into an historical perspective and graphed the annual CPI inflation and average annual OCR back to 1999 when this RB control model was instigated. I wish that I could include the graph it in my comment.
Breaking the period into three periods the following emerges.
2000 to 2008 Modest inflation ranging from 2 to 4 percent. Average 2.74% inflation. OCR ranging from 5.85% to 8 percent. Average OCR 6.44%
2010 to 2020. Modest to low inflation ranging from A short peak of 4% to 0.29%. Average inflation 1.59 percent. OCR Ranging from 2.8% to 0.38%. Average OCR 2.19 percent.
2022 - now. crazy out of control inflation 0.35% to over 7%. OCR modestly rising from 0.38% to 4.25%.
When you look at all that -
it seems to me that the interest rates were held too low in the second period compared to the first and indicate a strong part of the property bubble that has been in play for well over a decade..
from 2022 to now the OCR is still no where near high enough. Inflation now is about twice what is was in the first period but the OCR is still only 2/3rds what it was over that period.
Accordingly if the the reserve bank is to hold a consistent line in controlling inflation, the OCR needs to be substantially increased to something heading for 10%.
We cannot have it both ways. Artificially low OCR to boost house prices and keep them artificially low to stop them falling when out of control.
https://tradingeconomics.com/new-zealand/interest-rate
No such thing as an OCR back then. Presume those are 90 day bank bills.
Got to over 30% at one stage.
I remember that at one stage in retail it was more economic not to sell your stock because the wholesale replacement cost was higher!
That would only be true if wages had kept up with inflation through those periods. Because they haven't, and inflation has increased the debt pile but the servicing ratio has got worse, a lower interest rate will have the same moderating/shock value that a higher one would've had in the past.
Yes it's a self-feeding cycle, but the low OCR was in place to avoid deflation and the inflation caused was intentional and "healthy". The interest rate track is by necessity always downward unless persistent deflation (not just in asset prices) is maintained.
We only need one more OCR hike, and get it out of the way. So how big will it be?
The sooner we literally get on top of this (The OCR above the CPI) the sooner the OCR can chase CPI back down.
Unless we do, an OCR eventually dragged up to +8.5% is going to look low.
Trouble is, no matter how aggressive you are with rate rises, because of the amount of the populace with fixed term borrowings, that takes time to percolate through the economy. What we're seeing in terms of inflation figures now is a product of what the OCR was about 8-12 months ago. This lag gives you a real prospect of overshoot and meaning that when we tip into recession it could end up being sharper and longer than it needs to be as you're just as hamstrung when you want to unwind.
As compared to 25 to 30 mortgagee sales nationally Q2 and Q3 2020.
The the current situation is a slow train wreck without the immediacy of COVID job losses. I'm wondering how many leveraged mortgage holders are trying to sell as 'motivated vendor' before the bank sells for them?
Yes scooter my nest egg is shrivelling. No comeuppance required as it was earned not by greedy speculation at the expense of others like multiple properties or crypto etc, but by studying hard and then lots of work. The majority of my friends have the same story.
I could also point out the reason we are in this inflationary cycle is down to people much younger than me who kick the can rather than face the music. I do spoil my kids more than is good for them, that's just human nature. I bet your parents have too.
Young people do have a much tougher time affording a property now though, because of the 20+ years can kicking of lowering interest rates.
I don't think you understand how our economy works as a whole Yvil. People buy Investment properties to pull themselves up by putting and keeping others down. The benefit of investment property is derived from the time and energy of other people who are kept down. That's how you pull yourself up in this country.
See you on the flip side.
Renters usually have various options of the type and location. While some people prefer the flexibility. Landlords are obligated to provide better lodgings than many owner occupiers have. How would you describe rental car companies or storage companies.
I fail to see your argument.
"Landlords are obligated to provide better lodgings than many owner occupiers have."
I often hear this. But that is the owners choice. If they own their own home they can improve it. but if they don't want to spend the money, they can't complain. They are making the choice to buy rentals, and hope for a payoff in a big capital gain when they sell, or/and a good passive cashflow.
I often hear this. But that is the owners choice. I dont disagree
If they own their own home they can improve it. but if they don't want to spend the money, they can't complain. yep personal choice
They are making the choice to buy rentals, and hope for a payoff in a big capital gain when they sell, or/and a good passive cashflow. Not everyone owns rentals.
The moot was if investors are "putting and keeping others down"
It's the domestic generation that the Reserve Bank can target with increases in the Official Cash Rate.
Incorrect, monetary policy impacts our exchange rate and therefore has an impact on tradeable inflation as well. Increasing the OCR will also decrease tradeable inflation.
Long-term migration trending towards a ~1.5% net population gain this year plus natural increases. Add the planeloads of tourists arriving each day and we have successfully reignited the lolly scramble for limited resources in NZ.
How effective is RBNZ's monetary tightening alongside INZ's population easing? Eager to find out.
A sentence from a Stuff article posted back in 2014 predicted the population easing (short-term stimulus from population growth to the economy):
While economists largely agree that a rising population boosts short term demand, many warn it shifts resources away from investment which will boost long term prosperity, towards simply coping with the pressures of a growing population.
Time is the potency now, not significant rises I think. It's a close call but there is enough here to go with just 50bps. Let more mortgages roll off. The US is 3 months in front of us by the looks of things. The NZD will benefit from softening US inflationary data and this will do some of the heavy lifting for the RBNZ without having to go to 75bps.
I think that the NZ economy will change fast in Q2 and the spectre of a hard landing will necessitate the RBNZ stepping in to lift sentiment with a token OCR drop before years end.
Kiwi has given all gains from CPI back, so it's no smoking gun to push RBNZ to a definite 75bps move. Many where surprised with the last move being 75bps.
I think the market is going to price 50bps as the central case.
Got to think that inflation is going to be incredibly sticky on the way down unless there is a total collapse of business activity, then all bets are off.
Public service comes to mind.
Since the current slabs were first applied in 2010, the median FT worker's PAYE bill has increased by 108%. Total Crown revenue is up ~76% while CPI is up only 27.63% over the same period. Population is up less than 19% over the same period.
Isn't it hyper-shrinkflation on the part of NZ government where consumers (taxpayers) are receiving poorer services despite sharp increases in price?
There's no reason to think that high inflation is over, though people are falling over themselves to call it.
Are the cafes and restaurants still full? Yes. Are the malls still packed? Yes. You can see with your own damn eyes that demand is still strong. Don't believe industry types who are desperate to call the top for Twitter kudos (and to discourage the RBNZ from more hikes). Once spending actually slows, the numbers will change.
Agree Sam. There is economic energy out there for sure. Tourism and immigration are also an upside inflationary risk that is difficult to predict. I'm not super confident in my call for the future but it is mainly underpinned by how I feel the property market is going. I'm picking it will duck underneath 2019 prices by June (big call I know) in areas most affected (eg Wellington, Auckland City) and the impact of equity melting away will change behaviours. That and the growing number of mortgages rolling over in that same period. Again, a brave pick but I see these things getting most traction at a similar point in time. The result will be a strong inflection in behaviour in a short space of time (10-12 weeks) and this will spook the RBNZ enough to need to settle nerves with a token drop once the lag in data indicates what's happening. OCR to drop in early Q4 by a a token amount but stay circa 4-4.5% for the medium term. Lots to disagree with here - go for it.
I wonder to what extent we'll see a two-speed thing happening, with recent property buyers getting absolutely hammered while the rest of the population treads water. So much of the RE bubble money is already in the system, held by people who sold in the last few years or who have mortgages paid off. I don't think we've seen the negative wealth effect kick in yet, and I don't think we have any idea how strong it will actually be.
In terms of the overall inflation figures Stats NZ said housing and household utilities was the largest contributor to the December 2022 annual inflation rate. This was due to rising prices for both constructing and renting housing.
No kidding. the biggest block of price hike is from interest rates jump, as buying/building/renovating all affected hugely by interest rates. So, hiking OCR actually causing inflation.
Yup - massive risks with stocks. For me, gold stocks are a long run play in a world that looks like it's heading for an eventual collapse in confidence in fiat currencies, and before that some move away from the USD. Central banks appear to be buying gold, so I've taken a punt on it too.
Nope. Try thinking in dollar terms not percentages. My TD is about to come out and the interest rate has almost tripled in the last 12 months. The money from the investment will be over double what I'm currently getting, so my question is have all prices doubled in the last 12 months ? if not then I'm better off. Sure if I had a mortgage, then the pain would be bad, not only have rates doubled and you get to find all that extra money but the cost of everything else you buy has also gone up also its a double whammy. There is an outside chance now that TD rates could be 7% come 1st March.
If you had $1,000 in a TD earning 1% after tax, you'd have $1,010. Let's imagine a bottle of milk is $10 - that's 101 bottle of milk your $1,010 will buy. Now compare that to a $1,000 TD earning 5% after tax, where you'd have $1,050. If that same bottle of milk has gone up in price by 7%, your $1,050 only buys 98.1 bottles of milk. That's 3 fewer bottles of milk.
Unfortunately that is being offset by the house price eroding away at a similar rate. You are better off mortgage free and cash in the bank, its also a whole lot less stressful. Sure if you managed to get a 30 year mortgage from the bank at 3% then in 15 years you will be singing and dancing in the street, doesn't work like that in NZ.
If memory serves me correctly, back in 2007:
- inflation was around five percent (versus current 7.2 percent);
- the OCR was HIGHER THAN INFLATION around seven percent (versus current 4.25 percent);
- my twelve month term deposit rate topped out at nine percent (versus current 6 percent at SBS Bank);
- mortgage rates were a shade above ten percent (versus current six to seven percent or higher).
Correct me if I'm wrong, inflation is currently far worse than back then, and the OCR must surely be considered to be too low to tame inflation.
Unless we have another GFC, or a major outbreak of war in the northern hemisphere to bring things under control (would that bring things under control?), things must surely get far worse than they are now?
That is how I remember it as well.
Central banks dropped rates to save banks in 2008, then dropped them again to save the banks in 2020. AT no point was "inflation" ever considered.
The way I see it they have two options.
- Tone back rate increases (i.e. tacit acknowledgement the theory is false)
- Ramp up rate increases as per their Mandate.
I don't see 2 ever happening.
If the war involves China then we will be less worried about NZ industry and more worried about what we are going to eat. Pretty hard to drive a truck full of food to a supermarket when we're wholly reliant on imported fuel now and tankers aren't sailing to NZ because the pacific is a theatre of war.
From a physics or maths point of value it seems strange to think that these ocr rises are enough?
surely they won’t increase 75pts this time and that’s fixed the problem, then nothing else?
I see further rates rises of a lessor amount raising it to 7% at least
If we have 7% inflation for three years then kiwis will lose a third of their buying power in one election cycle
we have underinvested in productive industry to increase our national income, and maxed out our private debt to buy each other’s houses
not being able to buy a house is one thing, food as well and you have the making of a very angry mob
we have an opposition and government who fails to accept our plight
and a business community being lead by the banks and national party stooges
It’s going to be an interesting year…. like a Shakespeare play
I hope you are right but think you are being too optimistic there. As someone recently posted here, price and wage rises take time to flow thru the chain. There is still a lot of momentum.
Since you are big on being able to say 'I told you so', I will say CPI for the 3 months to May will be up over 1.25%. So 5% annualized. It smells like nearer 7%.
I never said interest rates head down in May. I think I have made it clear on several occasions that it is when the economic slump really starts showing, and when annual inflation will be around 4% or slightly lower. Inflation is proving stubborn so it might not quite get to 4% by May, and the question of whether the govt extend the fuel subsidies will also be important.
Interest sure to rise, que Edmonds Baking.
Really looks like the minority that have over leveraged, or on interest only speculating on asset rises are in for a very very tough year. Declining tax rinse, falling asset prices, 2-3× increase in cost of debt when refixing, and a big lack of buyers with sufficient free working cashflow to meet bank lending requirements. Do the math...
The prices drops in Awk and Welly of 25-30% are going to be repeated in all regional towns all over NZ this year.
The vested, aka banks and their risk proxys (specuvestors), will post a lot that it's going to be less arduous...but they will be wrong. Again.
From elsewhere:
The Consumer Price Index (CPI) rose 1.9% this quarter. Over the twelve months to the December 2022 quarter, the CPI rose 7.8%.
https://www.abs.gov.au/statistics/economy/price-indexes-and-inflation/c…
the RBA had expected an 8 per cent rise
And yet Lowe went for a 25bp hike in December. This is getting so predictable - deliberately overshoot inflation forecasts and celebrate the actual figure being slightly lower as a win!
On this side of the Tasman, expect chest-thumping from Hipkins, Orr and Robertson on faring better at "controlling" inflation than the Aussies.
What happens to inflation in this quarter when fuel subsidies are taken away and the price increases by most retailers really kicks in and shows up in the stats.
I guess we just have very short term memories that inflation can be controlled or goes away easily. This is in the making for last 5-10 years, not going away with a puff of air.
Let's get intelligent and go to the root cause of it and work from the bottom up to control it.
People have money and they will spend it. Only 30% have real mortgage and they will only have to control spending. Rest 70% are going to spend like there is no tomorrow. Let's see 20% are intelligent but 50% will still spend.
The elderly population is increasing, they have saved for their retirement age, they will spend. No motivation for them to save, they haven't got 50 more years to live.
But yes let's keep writing things that we are in control now and it's going down. Dreams are free.
Yes, the central planners are trapped. Too many recently created claims on resources chasing too few resources. All the govt/bank can do is allocate the reduction in standard of living depending on where they hear the most screaming.
"Let's get intelligent and go to the root cause of it and work from the bottom up to control it. "
The root cause is monetary policy. Stop fiddling with the price of money and there is no need for control by central planners.
Seems TA was right about "near peak OCR"
Which time? Here he reckons OCR peak of 3% and 1yr mortage of 'close to 5.5%'.\
They have to factor in that fuel price rises when the tax is added back on will add to inflation. It has causeed inflation to be artifically lower than it actually is. This inflation figure is still showing major inflation. Only when inflation is actually back in the band is inflation under control, not when prices are still increasing by 7.2% a year.
Why do people keep talking about the fuel price subsidy being removed as if it's going to be a factor? There's more chance of the Earth being flat than the government not extending the fuel price cut. "War On Inflation" Chippy isn't going to toss the election away over that.
The Fuel Price Subsidy just moved inflation from one place to another?
Whatever was 'saved' has to be paid for - i.e. a price rise of some sort, somewhere else in the Government books. Extending it doesn't make that go way. Failure to do that just compounds the problem if it has been funded by borrowing, and that borrowing in turn will have to be repaid, i.e. higher interest rates as well.
Why use inflation, which is a spurious measure if ones economic stress, as a " gospel measure" for comparison?!
Just look at the costs v income per person in what is now needed to survive..
Electricity us the biggest rip off followed by..... (We don't have xood damp houses all of a sudden! We have unaffordable electricity stopping people heating and drying their homes;)
Phones/;coms.
Food
Fuel, gas,
Maintenance...
The country is screwed by politicians who rooted the electricity supply system!.. and everything else!
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