by Nick Clark, Federated Farmers Manager General Policy
Seven in a row
Continued strong demand from China saw dairy prices increase again in this week’s Global Dairy Trade auction.
The GDT Price Index was up 3.0% compared to the previous auction a fortnight ago. All six commodities on offer increased in price, led by whole milk powder which increased 4.3%. Skim milk powder was up 0.3%, anhydrous milk fat up 1.1%, butter up 2.0%, cheddar up 2.4%, and lactose up 0.4%.
The average selling price was $US3,746 and 26,883 tonnes were sold.
This is the seventh consecutive increase since mid-November and the 11th increase out of 12 since mid-September. The GDT Price Index is now 19.6% higher than it was at the same time last year.
Food prices up in January
Food prices increased 1.3% in the month of January, according to Statistics NZ’s monthly Food Price Index. However, they were flat after seasonal adjustment and the annual increase of 2.1% was the smallest in 18 months.
In January 2021 compared with December 2020:
- Fruit and vegetable prices rose 1.7% (but dropped 1.4% after seasonal adjustment), with fruit up 1.4% and vegetables up 2.1%.
- Meat, poultry, and fish prices rose 1.1%, with beef & veal up 3.8% and mutton, lamb, & hogget up 2.1%.
- Grocery food prices rose 1.8 percent (up 0.8% after seasonal adjustment), with bread & cereals up 0.9% and milk, cheese, & eggs up 2.5% (mainly due to a 14.2% increase for yoghurt).
Meanwhile, the annual rate food price inflation was an increase of 2.1%. This was a slowdown from December 2020’s 2.9% and the smallest annual increase since July 2019’s 0.9%. In four of 2020’s months the annual increase exceeded 4%. A moderation in fruit and vegetable prices has been the main reason for the overall slowdown.
Comparing January 2021 with January 2020:
- Fruit and vegetable prices increased 6.9%, with fruit up 4.1% and vegetables up 9.4%.
- Meat, poultry, and fish prices decreased 1.7%, with beef & veal up 1.1% and mutton, lamb, & hogget down 4.1%.
- Grocery food prices increased 1.2%, with bread & cereals up 1.2% and milk, cheese, & eggs up 1.4%.
Greenhouse gases bounce back
A new experimental series measuring Greenhouse Gas Emissions has been developed by Statistics NZ and it shows emissions bouncing back after a lockdown induced slump.
The quarterly data shows emissions fell 8.1% in the June 2020 quarter but rose 9.1% in the following September 2020 quarter. This compares with GDP, which crashed 11.0% in the June quarter and rebounded 14.0% in the September quarter.
Although most sectors showed considerable volatility between quarters, emissions from agriculture, forestry, and fishing were pretty stable. They fell only 0.2% in the June quarter, due to most of the sector being able to continue operating through lockdown, and they were virtually unchanged in the September quarter.
The data series goes back to March 2014. New Zealand’s total emissions in the September 2020 quarter (20,176 kilotonnes of carbon dioxide equivalents) were 0.5% higher than those in the March 2014 quarter (20,071).
For agriculture, forestry, and fishing emissions were 3.1% lower (10,185 vs 10,515). This says a lot for the ongoing productivity and efficiency improvements of farming.
The emissions equivalents are expressed using GWP100 methodology, which overstates the contribution of short-lived methane emissions compared to another metric known as GWP*. The data series does not (at this stage) show how individual gases are tracking.
Primary industries lead productivity growth
For many years now productivity growth in the primary sectors has outpaced the rest of the economy and this continued in 2019/20, according to Statistics NZ’s Productivity Statistics.
Productivity growth was slow in the year to March 2020, rising just 0.6%, but it performed better than labour productivity, which fell 0.4%. Multifactor productivity, which accounts for both labour and capital inputs was virtually unchanged at 0.1% growth.
The primary industries had the largest increase in labour productivity during the year, with a rise of 2.4%. Within the primary sector, agriculture’s growth was 1.0%.
Since 1996 labour productivity growth across the economy has averaged 1.3%, with the primary sector’s averaging 2.2%. Within the primary sector, agriculture’s labour productivity growth has averaged 2.3%.
Farming has seen a long-term lift in productivity for decades, with greater improvements in efficiency than most other industries, including manufacturing and services (with the exception of information media and telecommunications which has been the fastest growing of all industries). There are plenty of examples of agriculture’s great productivity story – just think of the steady increases in milk produced per cow and heavier lambs since the 1990s.
These stats were pre-Covid and its huge disruptions and economic impacts. The data for the current 2020/21 year will no doubt be messy.
Manufacturing expanding but services contracting
January was a mixed bag for manufacturing and services according to the BNZ-Business NZ Performance of Manufacturing Index (PMI) and Performance of Services Index (PSI).
On the positive side, the PMI jumped 9.2 points from December to 57.5, putting it back into expansion (a score over 50 indicates expansion while a score below 50 indicates contraction). Business NZ observed that all the major sub-indices were up from December with new orders, production, and employment all particularly strong. Deliveries of raw materials remained below 50, however.
It was rather less encouraging for services, with the PSI dropping 1.2 points to 47.9. Apart from new orders/business all the other sub-indices were in contraction, including activity/sales and employment. Influences of the Christmas period, ongoing COVID-19 related issues (including freight challenges), and a slower return to ‘business as usual’ post holidays were cited by respondents. Hospitality was the sector in the most pain (with a score of 41.9) but retail was looking better (54.9).
Put together the two surveys indicate a slowing of growth in the first quarter of 2021, although the public sector and construction both remain strong.
Housing market continues its surge
The Real Estate Institute of New Zealand’s latest Residential Property Data show a housing market continuing to surge and exacerbating the housing affordability headache.
At $730,300, the national median house sales price was marginally lower in January compared to December but in seasonally-adjusted terms it was up 2.0% and compared to January 2020 it was up a whopping 19.3%.
Auckland’s median sales price was up 14.9% (to $1,000,000) for the year and all regions experienced large annual increases. The biggest gains were in Wellington (up 27.7%), Hawkes Bay (up 25.9%), Manawatu-Whanganui (up 25.6%), Taranaki (up 23.8%), and Northland (up 22.6%). Canterbury was the only region where the median price increased by less than 10%, its annual increase ‘only’ 9.7%.
4,957 houses were sold in January, up 3.2% on January 2020 and the highest for a month of January in five years. Auckland had a 37.6% increase but the rest of the country saw a 10.3% decline. Many regions have chronic low listings and inventory shortages.
The median days to sell a house was 35, down from 42 in January 2020.
Government finances improving
The financial position and performance of the Crown continues to be stronger than earlier forecast, according to the Interim Financial Statements of the Government of New Zealand for the six months ended 31 December 2020.
However, the impacts of the pandemic are still visible, with an operating balance before gains and losses a deficit of $3.98 billion and continued higher levels of net core Crown debt of $104.49 billion (32.6% of GDP).
Core Crown tax revenue was $45.30 billion, $826 million above the Half Year Economic and Fiscal Update’s forecast. This was largely due to GST revenue being higher than forecast owing to the continued strength of domestic spending. Core Crown expenses at $52.29 billion were $444 million below the forecast. The variance was mainly owing to social security and welfare being lower than forecast.
As a result, the operating deficit was $1.13 billion better than forecast. Similarly, net core Crown debt was $1.51 billion lower than forecast.
Migration and travel’s 2020 slump
Statistics NZ’s monthly International Travel and International Migration statistics confirm what everyone already knew – migration and travel fell off a cliff in 2020.
In the December 2020 year compared with the December 2019 year, the number of overseas visitor arrivals was 996,400, down by 2.89 million. In the same period, the number of New Zealand-resident traveller arrivals was 681,900, down by 2.42 million.
For the year to December 2020 there were 85,800 migrant arrivals, down 48.4% on the year to December 2019. Over the same period there were 41,600 migrant departures, down 55.4%. This left an annual net migration gain of 44,100, with 87% of it occurring in the first three months of the year before border and travel restrictions were imposed.
Stats NZ noted that falling net migration (coupled with a falling birth rate) means New Zealand’s population growth is slower than at any other time in the last seven years.
Next week – monetary policy in the spotlight
The big economic policy event next week is the Reserve Bank’s Monetary Policy Statement (MPS) and review of settings, including the Official Cash Rate (OCR) and its programme of Large-Scale Asset Purchases (LSAP).
It’s been quite a while since the last MPS and review of monetary policy settings – way back on 11 November. Since then, most economic news has surprised on the upside. GDP and other measures of economic activity bounced back, with employment surprisingly strong. The housing market has been buoyant (to say the least), thanks in no small part to the Reserve Bank’s loose monetary policy. Consumer price inflation is making a bit of a comeback, although some of that is related to supply disruptions, which will hopefully be temporary. The Government’s finances are also looking much better, with smaller deficits and lower debt now forecast which means it won’t have to borrow as much as earlier thought.
At least for now, the case for further monetary policy stimulus has diminished, but the Reserve Bank is unlikely to start tightening policy in the short term. There are still plenty of risks and this week’s reimposition of Covid restrictions shows just how real these are. Most economists expect economic growth to slow in 2021, especially if the borders remain closed for an extended period, as seems almost certain. There is even risk that GDP will be shown to have declined in either or both of the December and March quarters. The exchange rate is also strong which from a monetary policy perspective helps dampen imported inflation.
So, expect the OCR to remain unchanged at 0.25%. That’s almost certain. The rest is more speculative but with its previous forward guidance about to end the Reserve Bank could signal the OCR to remain on hold for a further extended period. And rather than reducing the LSAP’s $100 billion limit, the Reserve Bank may well extend its timeframe. A slowing of purchases would have the effect of ‘tapering’ and paving the way for an eventual normalisation of policy before we start seeing OCR increases.
NIWA Soil Moisture Data
NIWA’s latest soil moisture maps (as at 9am Thursday 18 February) show the effect of welcome rain in many areas. Whereas last week virtually all of the North Island’s soils were significantly dryer than usual, this is now confined to mainly central parts of the Island, and the Far North’s in particular are significantly wetter than usual. The South Island’s soils are generally normal albeit with patches of dryer conditions, such as Golden Bay and the Catlins.
Exchange Rates
The NZ Dollar was a little lower over the week, down 0.1% against the TWI. While down overall, its fortunes were mixed against our major trading partners – up against the Euro and the Yen but down against the others.
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 basis point. The yield for 10 year Government Bonds continued its recent run of increases, up 14 basis points, and now 51 basis points higher than a month ago.
The Reserve Bank will next review monetary policy settings (including the OCR) on 24 February.
| This Week (18/2/21) | Last Week (11/2/21) | Last Month (18/1/21) | Last Year (18/2/20) | |
| OCR | 0.25% | 0.25% | 0.25% | 1.00% |
| 90 Day Bank Bill | 0.28% | 0.29% | 0.29% | 1.18% |
| 10 Year Government Bond | 1.51% | 1.37% | 1.00% | 1.34% |
Source: Reserve Bank of NZ
