by Nick Clark, Manager General Policy
Inflation edges up, more to come
As expected, inflation picked up in the March quarter, with the Consumer Price Index 0.8% higher than the December quarter, taking the annual rate up slightly to 1.5%.
Transport was the main upward driver, rising 3.9% in the quarter, influenced by a 4.9% increase in prices for private transport supplies and services (with a 7.2% increase in petrol prices) and a 2.6% increase in prices for purchase of vehicles.
Housing and household utilities rose 0.9%, due to rentals for housing increasing 1.0% and home ownership costs increasing 1.2%. Food prices rose 0.6%, influenced by grocery food (up 0.9%) and restaurant meals and ready to eat foods (up 0.9%).
Alcoholic beverages and tobacco prices rose 1.6% in the quarter, mainly due by higher prices for cigarettes and tobacco (up 2.7%). The increase was more modest than those for previous years due to the end of hefty annual hikes in cigarette taxes.
From the March 2020 quarter to the March 2021 quarter, the annual increase in the CPI was 1.5%, a little higher than the 1.4% annual increase for the December quarter.
Housing and household utilities increased 2.6%, with higher prices for home ownership (up 3.5%) and rentals for housing (up 2.7%). Food prices increased 1.1 percent, with higher prices for restaurant meals and ready-to-eat foods (up 3.7%) and fruit and vegetables (up 3.9%). Alcoholic beverages and tobacco increased 2.5%, with higher prices for cigarettes and tobacco (up 2.9%) and alcoholic beverages (up 2.2%). Miscellaneous goods and services increased 1.9%, with higher prices for other miscellaneous services (up 6.1%).
Tradables inflation (prices of goods and services imported or exposed to international competition) was 0.9% for the quarter and 0.5% for the year while non-tradables inflation (domestic goods and services not exposed to international competition) was 0.7% for the quarter and 2.1% for the year.
Annual inflation will jump above 2% in the June 2021 quarter and could even exceed 2.5%. The June 2020 quarter’s -0.5% result will drop out of the year-on-year calculation while business confidence surveys suggest stretched capacity, supply bottlenecks, and higher costs will flow through to consumers. While a one-off CPI spike shouldn’t worry the Reserve Bank, the key question for it in setting monetary policy is whether it will be temporary or more enduring.
Dairy prices stable
This week’s Global Dairy Trade auction recorded an overall 0.1% decline in prices, although there was a small gain for whole milk powder.
Whole milk powder (up 0.4%) and cheddar (up 1.2%) posted increases, skim milk powder was unchanged, while there were drops for anhydrous milk fat (down 3.3%), butter (down 0.6%), and lactose (down 3.4%).
The average selling price was US$4,110 and 25,040 tonnes were sold.
The GDT Price Index is 44.1% higher than the same time last year and it is tracking at seven year highs. This is a remarkable turnaround given that 12 months ago dairy prices were, like those of most commodities, in a trough caused by the global pandemic lockdown and economic slump.
Manufacturing and services up in March
The PMI for March was a seasonally-adjusted 63.6, up 9.4 points from February and the highest monthly result since the survey started in March 2002. A score of over 50 indicates expansion and a score under 50 indicates contraction. Production (66.8) and New Orders (72.5) were both very strong, indicating strong demand. Although firms have experienced supply chain challenges, it was encouraging to see deliveries of raw materials also lift strongly to a score of 62.8.
Meanwhile, the PSI showed service sector activity climbing into expansion for the first time in five months. Its score of 52.4 was up 2.7 points from February, but this is well below its long-term average (53.8). New Orders/Business led the way (56.9) followed by Activity/Sales (54.5) but other sub-indicators were either in lacklustre expansion or in contraction.
R&D on the rise
Statistics NZ’s Research and Development Survey showed R&D spending increasing from $3.92 billion in 2020 to $4.55 billion in 2020, a 16.0% increase in two years.
Business was the biggest spender, with 59.6% of total spending, followed by higher education (23.8%) and government (16.7%).
In terms of business sector, the agriculture, forestry, and fishing sector spent $99 million in 2020, up 11.2% from 2018’s $89 million. In addition, spending by the food manufacturing sector was up from $114 million to $135 million (or 18.4%).
As a percentage of GDP, the increase in R&D spending was more modest, from 1.35% to 1.41%. This is well behind the OECD average of 2.47% in 2019.
NIWA Soil Moisture Data.
NIWA’s latest soil moisture maps (as at 9am Thursday 22 April) show soils significantly drier than usual across almost all of the east coasts of both islands, and especially so in Wairoa, southern Hawkes Bay, Hurunui, Clutha, and Southland. In contrast, soils are wetter than usual in the Bay of Islands, Bay of Plenty, coastal Waitomo, Taranaki, and from Tasman Bay to Marlborough Sounds.
The NZ Dollar was a bit stronger this week, up 0.4% against the TWI. It was up against all our key trading partners, except the UK Pound.
Source: Reserve Bank of NZ
Wholesale Interest Rates
Over the course of the week the yield for the 90 Day Bank Bill was up 1 point, but the 10 year Government Bond yield was down 14 points.
The Reserve Bank will next review monetary policy settings (including the OCR) on 26 May.
|This Week (22/4/21)||Last Week (15/4/21)||Last Month (22/3/21)||Last Year (22/4/20)|
|90 Day Bank Bill||0.35%||0.34%||0.35%||0.33%|
|10 Year Government Bond||1.58%||1.72%||1.82%||0.89%|
Source: Reserve Bank of NZ