by Nick Clark, National Manager General Policy
New record for commodity prices
The ANZ World Commodity Price Index hit a new record high in March 2022, lifting a further 3.9% for the month.
Dairy prices were up 7.6% to sit just below their record level set in April 2013. Meat and fibre prices slipped 0.6%, mainly due to softening beef prices although lamb prices were up a little. Horticulture prices were flat, forestry prices were up 3.3%, and aluminium prices jumped 8.4%.
The NZ Dollar gained ground in March, strengthening 3.1% for the month. This dampened the NZ Dollar Index to a gain of 0.5%.
On an annual basis, comparing March 2022 to March 2021, the World Price Index was up 18.0% and the NZ Dollar Index was up 20.9%.
Not such good news was ANZ also reporting that global shipping prices on the rise again due to lockdowns in China, limiting port throughput. Global supply chain woes won’t be going away any time soon, alas.
GDT drops again
Dairy prices slipped again at this week’s Global Dairy Trade auction but they remain high.
The GDT Price Index was down 1.0% compared to the previous auction three weeks ago. Whole milk powder led the decline, dropping 1.5%, while there were also drops for anhydrous milk fat (down 2.5%), butter (down 0.6%), and lactose (down 0.6%). On the other hand, there were increases for skim milk powder (up 1.0%), cheddar (up 2.7%), and butter milk powder (up 6.3%).
The average selling price was $US4,981 and 21,511 tonnes of product were sold.
The last two auctions saw drops of 0.9% and 1.0% respectively but the GDT Price Index is still 17% higher than it was at the start of the year and is 20.4% higher than at the same time last year. It also continues to be close to its record high.
Government finances continue to outperform
The Government’s Interim Financial Statements for the eight months ended 28 February 2022 have shown a continuation of better than expected fiscal indicators.
Core Crown tax revenue was $68.04 billion, $1.82 billion higher than expected at December’s Half-Year Economic and Fiscal Update. Corporate tax, other individuals’ tax, and source deductions were all significantly higher than forecast but GST revenue was below forecast, which could reflect current economic headwinds.
Core Crown expenditure was $81.43 billion, $1.39 billion lower than expected, mainly due to lower than forecast spending on Covid-19 support payments and economic and industrial services.
The operating balance before gains and losses was a deficit of $8.28 billion, a big deficit but $4.44 billion smaller than expected.
Net core Crown debt was $123.11 billion (35.2% of GDP), $1.86 billion lower than expected.
Consumers’ gloom deepens
ANZ-Roy Morgan’s monthly Consumer Confidence Index slumped further in March plumbing new depths of gloom.
The Index dropped 3.8 points to 77.9. A score below 100 indicates more pessimists than optimists. February’s score of 81.7 has been the lowest since the survey began in 2004 and March sets a new record low.
A net 24% of respondents thought they were worse off compared to a year ago and a net 9% expect to be worse off in a year’s time. A net 45% expect bad times over for the economy over the next 12 months and a net 26% consider it to be a bad time to buy a major household appliance. All were worse than in February and the only indicator not to worsen was the net 7% who expect bad times for the economy over the next five years (up 1 point from -8%).
Expected consumer price inflation over the next 12 months ticked up to 6.0% (from 5.6% in February) but expected house price inflation dropped to 2.7% (from 4.8% in February).
Job ads up
Job advertisements hit a fresh high in March, according to March’s BNZ SEEK Employment Report.
Overall, job ads were up 1.7% from February to March. March 2022’s ads were up 27.0% on March 2021’s and for the full year to March 2022 job ads were 63.5% higher than for the year to March 2021.
Hospitality and tourism jobs saw the biggest month-on-month increase, jumping 21%. Advertisements for farming, animals, and conservation were up 3%.
Next week – OCR call…
Next week’s big economic news will be the Reserve Bank’s review of monetary policy settings, including the Official Cash Rate. The OCR will increase, it’s just a matter of how much it will be hiked. Market pricing suggests a strong chance of a 50 point increase to 1.5%.
‘Hawks’, who are in the ascendency among economic commentators, point to high inflation and look to acute cost and pricing pressures keeping inflation higher for longer. They also point to employment being well above its maximum sustainable level.
However, there are still ‘doves’ out there who say the economic situation remains choppy with plenty of risks to growth and employment and they point to a housing market that has quickly run out of steam and a slump in consumer confidence. They are in the 25 point camp. No one seems to be suggesting there should be no change.
On balance, a 50 point increase is justified given high inflation and a tight labour market.
NIWA Soil Moisture Data
NIWA’s latest soil moisture maps (as at 9am Thursday 7 April) continues to show significantly wetter soils than usual in the eastern regions of the North Island as well as areas like Rodney, Bay of Plenty, South Taranaki, Manawatu, and Kaikoura. Soils continue to be significantly drier than usual in Southland, and becoming drier in much of Otago, West Coast, Golden Bay, Hauraki Plains, and western Northland.
Exchange Rates
The NZ Dollar weaker again this week, down 0.5% against the Trade Weighted Index. It was down against all our major trading partners, except the Euro and the Yen.
Source: Reserve Bank of NZ
Wholesale Interest Rates
Over the course of the week, the yield for the 90 Day Bank Bill was up 6 points to 1.67% while the 10 year Government Bond yield was up 14 points to 3.41%.
The Reserve Bank will next review monetary policy settings (including the OCR) on 13 April 2022. Another increase is highly likely and it could be a 50 pointer.
| This Week (7/4/22) | Last Week (31/3/22) | Last Month (7/3/22) | Last Year (7/4/21) | |
| OCR | 1.00% | 1.00% | 1.00% | 0.25% |
| 90 Day Bank Bill | 1.67% | 1.61% | 1.34% | 0.34% |
| 10 Year Government Bond | 3.41% | 3.27% | 2.76% | 1.76% |
Source: Reserve Bank of NZ