by Nick Clark, Manager General Policy
Commodity prices March upwards
The monthly ANZ World Commodity Price Index lifted 6.1% in March to reach a record high.
The strength in the overall index was driven primarily by a sharp lift in dairy prices, with the dairy sub-index up 12.7% to its highest level in seven years. Meat and fibre prices were also up 1.1%, with beef prices easing slightly but lamb prices up 5.6% and wool prices up 9.9%. Horticulture prices were unchanged, forestry prices up 1.9%, and aluminium prices up 5.6%.
In local currency terms the index gained 7.4% for the month to also reach a record high, supported by a weaker New Zealand Dollar. This will be supportive of farmgate prices.
Compared to March 2020 the World Price Index was up 20.2% and the NZ Dollar Index was up 4.0%.
Dairy prices stable
After dropping at its last auction, the Global Dairy Trade increased 0.3% at this week’s auction.
Whole milk powder was unchanged, but there were increases for most of the remaining commodities. Skim milk powder was up 0.6%, anhydrous milk fat up 0.8%, butter up 2.0%, cheddar up 2.2%, and butter milk powder up 17.6%. Lactose was the only one to fall, down 6.5%.
The average selling price was $US4,081 per tonne and $25,104 tonnes were sold.
The GDT Price Index is now 38.2% higher than at the same time last year.
Government accounts improve further
The Government’s accounts continue to improve on the back of higher than expected tax revenue.
The Government’s Interim Financial Statements for the eight months to February 2021 show core Crown tax revenue of $60.90 billion, $2.28 billion higher than expected at December’s Half Year Economic and Fiscal Update, on the back of stronger revenue from GST, corporate tax, and source deductions (e.g., PAYE).
Core Crown revenue was $65.18 billion, $2.36 billion higher than expected, while core Crown expenses came in at $68.92 billion, $488 million lower than expected. The net result was a $4.51 billion operating deficit before gains and losses, $3.66 billion lower than expected.
Net core Crown debt was $103.32 billion (32.6% of GDP), $4.42 billion lower than expected.
Business confidence falls again
ANZ’s monthly Business Outlook Survey fell in March and the fall has continued into this month according to April’s preliminary result.
Overall, a net 8.4% of respondents expect the economy to worsen over the coming year, a 4.3 point worsening from March’s -4.1%. It was less bad for own activity, where a net 16.4% expect their own activity to increase, down 0.2 points on March’s +16.6.
Businesses are expecting increasing cost pressures, lower expectations for profits, and tougher credit conditions. More are expecting to increase their prices.
Consumer confidence slips
The monthly ANZ-Roy Morgan Consumer Confidence Index fell 2.3 points in March to sit at 110.8.
Perceptions of current financial situations lifted 5 points to a net 3% saying they are better off than this time last year but the proportion of people who believe it is a good time to buy a major household item, a key retail indicator, fell 6 points to a net 14% considering it a good time to buy.
Inflation expectations eased slightly (from 4.6% to 4.0%), as did expectation for house price inflation (down from 7.5% to 6.1%).
Two great Bills
This week two excellent economic Bills were drawn from the Members’ Bill Ballot.
The Income Tax (Adjustment of Taxable Income Ranges) Amendment Bill is in the name of National MP Simon Bridges and provides for automatic indexation of income tax thresholds. With tax thresholds rarely adjusted more and more individuals have been moving into higher tax brackets without taking account the rising cost of living. The Bill’s explanatory note says the absence of adjustments to tax thresholds ‘is effectively a tax increase by stealth’.
Regular adjustments of income tax thresholds is Federated Farmers’ policy so it’s good to see it being advanced.
The Regulatory Standards Bill is in the name of ACT MP David Seymour. The Bill aims to improve the quality of regulation by increasing transparency of regulation-making and the accountability of regulation makers by providing:
- A benchmark for good regulation through a set of regulatory principles all regulation should comply with; and
- Transparency by requiring those proposing and creating regulation to certify whether the regulation is compatible with the principles; and
- Monitoring of the certification process through a new declaratory role for the courts.
Federated Farmers has long supported efforts to improve the quality of regulation, especially given the eye watering regulatory tsunami of recent years, too much of which has been of poor quality. There have been attempts over the years to advance such a Bill stretching back to the 2000s, with Federated Farmers submitting in support of one earlier version which made it to a select committee, but successive governments have failed to advance them. It’s great to see another attempt being made and we hope it’s time has now come.
A Members Bill drawn from the Ballot is introduced to the House, with MPs debating it at a First Reading before voting on whether it should be passed for consideration of a select committee. With Labour holding an absolute majority its MPs will determine whether either of these Bills make it any further. Hopefully they will let either or both of them be considered.
Next week
The main economic news for next week is the Reserve Bank’s review of monetary policy settings. Expect the Official Cash Rate (OCR) to remain unchanged on 0.25% and for no changes to its other tools, Large Scale Asset Purchases (LSAP) and Funding for Lending Programme (FLP). However, it will comment on the state of economy, inflation, employment, and the housing market. Economists will be picking over its statement for any clues as to when any changes to monetary policy are likely.
NIWA Soil Moisture Data
NIWA’s latest soil moisture maps (as at 9am Thursday 8 April) show soils across most of the east coasts of both islands, western Northland and much of Southland being significantly drier than usual. In contrast, soils in South Taranaki, Whanganui, Nelson City, and Marlborough are significantly wetter than usual.
Exchange Rates
The NZ Dollar was up a little overall, strengthening 0.2% against the TWI. It was up against most of our key trading partners, the exceptions being 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 down 1 point, while the 10 year Government Bond yield was down 6 points.
The Reserve Bank will next review monetary policy settings (including the OCR) on 14 April.
| This Week (8/4/21) | Last Week (1/4/21) | Last Month (8/3/21) | Last Year (8/4/20) | |
| OCR | 0.25% | 0.25% | 0.25% | 0.25% |
| 90 Day Bank Bill | 0.33% | 0.34% | 0.32% | 0.45% |
| 10 Year Government Bond | 1.75% | 1.81% | 1.91% | 1.09% |
Source: Reserve Bank of NZ