When No Inflation Is Good Inflation
Ultimately inflation targeting is an intermediate objective. The ultimate role of monetary policy is to assist in creating an environment which maximizes the long term well-being of a country’s citizens. Removing, rather than creating, economic distortions must surely be a means to achieving this outcome. With this in mind we are hopeful that the new incoming Governor will take a more pragmatic stance to central banking than his predecessor and, in particular, be more openly aware of the ultimate goals of monetary policy rather than inflation targeting simply for inflation targeting’s sake.
US FOMC Preview – Data Supports a Hawkish Fed
US FOMC Preview – Data Supports a Hawkish Fed
New Zealand’s services sector experienced a slight slip in expansion levels during February, according to the BNZ - BusinessNZ Performance of Services Index (PSI).
New Zealand’s level of manufacturing expansion decreased slightly in February, according to the BNZ - BusinessNZ Performance of Manufacturing Index (PMI).
NZ Growth Dip Of Little Concern
The New Zealand economy grew 0.6% through the fourth quarter of 2017. Compared with year earlier levels activity was up 2.9%. The quarterly outturn was modestly below expectations and resulted in a 30 pip fall in the NZD. In our opinion, the market response was probably unwarranted as: the data are very dated; the outcome was only 0.1% below that of the RBNZ’s expectations; and the figures are highly unlikely to result in any significant shift in forecasters’ views of the future.
Starting To Widen
New Zealand’s external accounts remain off the market’s radar. One reason is a relatively small current account deficit. Another is a shrinking net external liability ratio. We expect the current account deficit to widen ahead, but remain contained by historical standards.
A Toast to a Half-Filled Tumbler
If New Zealand’s business glass appeared drained after the news of the new government, it has arguably just been topped up to half full. At one level, today’s ANZ business outlook survey was encouraging. Its net confidence reading, in particular, rebounded to -19, from its prior result, of -38, back in December. At another level, however, it obviously remains clearly below par, and thus well south of where it was riding, going into September’s election.
The tills were ringing loudly in the final quarter of last year. Of course, they always do in the Christmas quarter but it was more than usual this time around.
New Zealand’s services sector started 2018 with a healthy level of expansion, according to the BNZ - BusinessNZ Performance of Services Index (PSI).
RBNZ Maintains Tightening Bias
We see no need to change our view that the RBNZ starts raising interest rates in February 2019 and then it moves relatively aggressively. However, we equally concede that there are multiple risks around our hypothesis. In addition to economic developments, we will have a new RBNZ Governor for the next Monetary Policy Statement and, potentially, a very different Policy Targets Agreement.
Labour Market Keeps Promise of Stronger Wage Inflation
While today’s labour market data were not entirely strong, they add to the impression that New Zealand’s labour market is tight and tightening further. But also that, for the meantime, inflation in wage rates remains moderate.
Seeing Through the CPI’s New Clothes
Sure, the RBNZ, in its November Monetary Policy Statement (MPS), was looking for 1.8%, and, more to the point, a slowdown to just 1.5% for Q1 2018. However, it also forecast annual CPI inflation to pop back up to 2.1% in Q2 2018 (and to stay around the middle of the 1.0 to 3.0% target band over the remainder of the forecast horizon). Today’s CPI outturn undermines this profile, at least for the foreseeable future.
Performance of Services Index - Solid Performer
New Zealand’s services sector ended the year in solid expansion territory, according to the BNZ - BusinessNZ Performance of Services Index (PSI).
Performance of Manufacturing Index -Summer Slowdown
New Zealand’s level of manufacturing expansion slowed during December, according to the BNZ - BusinessNZ Performance of Manufacturing Index (PMI).
BNZ Economy Watch: QSBO Holds Up Rather Well, Considering
Sure, this morning’s Quarterly Survey of Business Opinion (QSBO) registered a further fall in net confidence, into negative territory. However, the further we delved into this NZIER report the more resilient it appeared. While firms are publicly expressing unease about the new government, they are privately getting on with business. Indeed, their most pressing issue at the moment would seem to be a lack of resources – both capital and labour – which is starting to impinge on profitability.