by Nick Clark, National Manager General Policy
Welcome to 2023 and the first Federated Farmers economic commentary for the year. It’s been four weeks since my last one so a fair bit to cover.
Commodity prices down again
The ANZ World Commodity Price Index ended 2022 with only a small decline, but one that was made bigger by a stronger NZ Dollar.
Comparing December with November, the World Price Index was down 0.1%. dairy prices were up 0.5% but meat & fibre prices fell 3.9%. Forestry prices were also down 0.1% but horticulture prices were up 4.3% and aluminium prices up 1.9%.
The exchange rate appreciated by 2.1% during the month, resulting in the NZ Dollar Index dropping 3.8%.
Compared to the same month last year, the World Price Index was down 11.4%, while the NZ Dollar Index was down 7.1%.
Slightly better news was that global shipping prices have fallen sharply and are nearing pre-pandemic levels. ANZ noted that in part this was due to lower fuel prices and fewer delays and less congestion at ports but another less positive factor was the impact on container traffic from weakening consumer demand.
Dairy prices continue falling.
There have been two Global Dairy Trade auctions this year, held on 3 January and 17 January.
The 3 January event saw the GDT Price Index drop 2.8%, hard on the heels of a 3.8% drop in 2022’s last auction. All commodities had price falls, with whole milk powder down 1.4%, skim milk powder down 4.3%, anhydrous milk fat down 5.1%, butter down 2.8%, cheddar down 2.7%, and lactose down 3.6%. The average selling price was $US3,365 and 33,478 tonnes were sold.
The 17 January event was virtually unchanged, with the GDT Price Index down 0.1%. Whole milk powder was up 0.1%, and cheddar up 4.0%, but the other commodities fell. Skim milk powder was down 0.3, anhydrous milk fat down 0.9%, and butter down 0.6%. The average selling price was $US3,393 and 31,872 tonnes were sold.
The GDT Price Index is 26.3% lower than at the same time last year.
Food prices accelerate
Annual food price inflation continued to increase in December to more than 11%, the highest annual rate in 32 years, according to Statistics NZ’s monthly Food Price Index.
Comparing December 2022 with November 2022, the Index increased by 1.1% and it was also up 1.1% after seasonal adjustment.
- Fruit and vegetable prices were up 5.9% (and up 3.6% after seasonal adjustment), with fruit up 4.8% and vegetables up 6.6%.
- Meat, poultry, and fish prices were down 1.2%, with beef & veal down 2.3% and mutton, lamb & hogget down 10.0%.
- Grocery food items were up 1.2%, with bread & cereals up 0.6% and milk, cheese & eggs up 3.4% (eggs were up 10.1%).
The monthly price rise was broad-based. There were price increases for 60% of the 162 items it measures, whereas in December 2021 53% had increases.
On an annual basis, comparing December 2022 with December 2021, the Index was up 11.3%.
- Fruit and vegetable prices were up 23.3%, with fruit and vegetables both up 23.3%.
- Meat, poultry, and fish prices were up 11.0%, with beef & veal up 10.0% and mutton, lamb & hogget down 6.1%.
- Grocery food items were up 10.8%, with bread & cereals up 9.9% and milk, cheese & eggs up 14.8% (with eggs up 28.8%).
This is the highest annual increase in food prices since April 1990, when it was 11.4%.
Next week’s CPI
On Wednesday Statistics NZ will release the December quarter’s Consumer Price Index, a key piece of data for next month’s review of the Official Cash Rate. The Reserve Bank’s forecast back in November was for the December quarter’s annual rate to come in at 7.5%, a bit higher than the September quarter’s rate of 7.2%. Although food price inflation has since accelerated, lower petrol prices and moderating global inflation pressures may see the CPI come in a little lower than that forecast.
It would be too early to declare victory and go easier, however tempting that might be with the grim economic situation. Stripping out volatile items, like petrol prices, core inflation is likely to remain elevated while business and consumer confidence surveys continue to show intense cost and pricing pressures and higher inflationary expectations. As a result, even if the CPI comes in closer to 7% than 7.5%, the CPI could stay higher for longer.
Although some in the markets think a smaller increase might now be on the cards, a 75-point OCR increase on 22 February is still the most likely decision.
Ag debt unchanged
Agricultural debt was stable in November, according to the Reserve Bank’s monthly Sector Lending Statistics.
In November 2022, agricultural sector lending was $62.00 billion, down $4 million on October and up $16 million from November 2021. This masked differences within the sector:
- Dairy cattle farming: $36.41 billion, up $17 million for the month but down $1.03 billion (or 2.8%) for the year.
- Sheep, beef cattle, and grains farming: $15.26 billion, down $41 million for the month but up $54 million (or 0.4%) for the year.
- Horticulture: $7.25 billion, up $39 million for the month and up $1.03 billion (or 16.6%) for the year.
- Other agriculture on farm: $2.27 billion, down $33 million for the month and down $92 million (or 3.9%) for the year.
In contrast to agriculture’s annual ‘no change’, annual growth in housing lending was 4.8%, continuing its recent trend of slowing annual growth, while personal consumer debt was up 0.3%. Business lending was up 8.3%.
Primary industries employment falling
Employment continued to grow overall in November, but it continued to decline for the primary industries, according to Statistics NZ’s Monthly Employment Indicators.
In November 2022 there were 2,359,000 ‘actual’ (i.e., unadjusted for seasonal effects) filled jobs across the whole economy, up 50,100 (or 2.2%) compared to the same month last year. This follows a seasonally adjusted 0.2% increase for the month of November compared to October.
There were 103,300 filled jobs in agriculture, forestry, and fishing, down 5,700 (or 5.3%) for the year. Seasonally adjusted jobs were also down for the month.
Most jobs growth in recent times has been in the services industries. Over the past year growth has been strongest in public administration and safety and in professional, scientific, and technical services. Construction has also grown strongly.
In contrast employment in agriculture, forestry, and fishing has been falling. Labour shortages have been particularly acute in the primary industries and more recently sharply higher input costs are also causing many farmers and growers to cut costs where they can, which can mean deciding not to fill vacancies or in some cases restructuring their businesses.
Job ads falling
Job advertisements have fallen 20% over the past four months, according to BNZ-SEEK’s latest Monthly Employment Report.
Comparing December 2022 with November 2022, job ads were down 6.3% and they were also down 10.2% compared to December 2021. Job ads are still about 20% above their pre-Covid 2019 average but if this rapid cooling continues that gap could be closed by mid-2023.
Property related service industries had large declines in December and there was also a sharp 12% decline in ads for the farming, animals, and conservation industry. In contrast, ads for government and defence jobs continued to grow, up 12%.
House prices and sales continue falling.
House prices have continued falling and sales volumes remain weak according to the Real Estate Institute of New Zealand’s monthly Residential Market Statistics.
The median house sales price in December 2022 was $790,000, down 2.2% compared to November’s $808,000 and down 12.2% compared to December 2021’s $900,000. REINZ’s House Price Index, which corrects for compositional factors, was also down 13.7% compared to December 2021.
All but three regions posted declines in median prices. There were double digit falls for eight regions, with the biggest drops for Wellington (down 20.2%) and Auckland (down 18.0%). The three regions that did not decline were Northland (up 3.3%), Taranaki (up 5.1%), and West Coast (no change).
Sales volumes continued to be weak. The 4,336 houses sold in December was down 23.6% compared to November and was down 39.0% compared to December 2021. Meanwhile, the median days to sell a house was 40, up from 29 in December 2021.
Building consents rise
Statistics NZ’s monthly Building Consents Issued have shown a rebound in residential building consents, defying gloom in the housing market.
In November 2022, there were 4,649 residential building consents, valued at $1.9 billion. The seasonally adjusted number of consents jumped by 7.0%, bouncing back from a 10.7% fall the month prior. Multi-unit homes continue to rise, more than offsetting a decline in stand-alone houses. Multi-unit homes include townhouses, apartments, retirement village units, and flats. They now make up the majority of new dwelling consents.
For the year ended November 2022, the number of new dwellings consented was 50,209, up 3.2% from the year ended November 2021. These were valued at $20.4 billion, up 10.2%.
The annual value of non-residential building work consented was $9.4 billion, up 13.5% from the year ended November 2021. Out of this $317 million was for farm buildings, up 4.1%.
Retail spending down
Seasonally adjusted retail card spending fell in December according to Statistics NZ’s monthly Electronic Card Transactions.
While December 2022 retail card spending rose in actual terms, Stats NZ observed that the increase was smaller than those typically seen in past December months where spending is boosted by Christmas. After adjusting for normal seasonal patterns, this resulted in a 1.2% decrease for the December 2022 month.
In actual terms, comparing December 2022 to December 2021, total card spending was up 6.1%, lower than the annual rate of inflation, indicating a decline in the volume of spending. The strongest growth was for hospitality, which increased 23.7%. Two retail industries had declines, durables (down 4.2%) and vehicles (down 4.7%). Both are sensitive to economic conditions and consumer sentiment.
Household spending is likely to remain weak over 2023.
A new year but no let-up in business gloom
The latest NZIER Quarterly Survey of Business Opinion has shown a deterioration in business sentiment and activity.
The December survey was grim and captured the effects of the more hawkish than expected November Monetary Policy Statement, where the Reserve Bank indicated it would take interest rates higher than earlier expected to rein in inflation and where it predicted a recession in 2023.
On a seasonally adjusted basis, a net 73% of businesses expect general economic conditions to deteriorate over the coming months – the weakest over the survey’s long history. For activity in their own business, a net 13% reported decline over the past quarter. This was the weakest since June 2020 survey when the full impact of the first Covid-19 lockdown was captured. Despite this, pricing and cost metrics worsened, with still acute labour shortages.
Builders and retailers were the most downbeat sectors. Farmers are not surveyed but many businesses serving farmers are.
The NZIER survey is closely watched by the Reserve Bank and other policy makers.
Farm Confidence Survey reminder
Speaking of confidence surveys, Federated Farmers January 2023 Farm Confidence Survey is open for responses. Members’ opinions collected in the six-monthly survey assist Federated Farmers to better understand how farmers are feeling about the economic climate and how they are responding, as well as the big issues of concern to them.
This short survey can be easily completed in just a few minutes. You can also choose to enter a prize draw for a chance to win a $500 grocery voucher!
Members will have received an email from us inviting them to complete the survey by Monday 23 January.
NIWA Soil Moisture Data.
NIWA’s latest soil moisture maps (as at 9am Thursday 19 January) show a stark contrast between the North and South Islands. As befitting a wetter summer across the North Island (especially compared to last year), most of the island’s soils are significantly wetter than usual for this time of year, except for a small area in coastal Manawatu. Meanwhile, much of the South Island is dryer than usual, and significantly dryer on the West Coast, Southland, and Fiordland.
Exchange Rates.
The NZ Dollar recovered a bit of last week’s losses, up 0.4% against the Trade Weighted Index. It was stronger against the US Dollar, Australian Dollar, the Euro, and the Chinese Renminbi, but weaker against the UK Pound and the Japanese 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 3 points to 4.81% but the 10-year Government Bond yield was down 14 points to 3.99%, opening quite a gap between the two rates.
The Reserve Bank next reviews monetary policy settings (including the OCR) on 22 February 2023.
| This Week (19/11/23) | Last Week (12/1/23) | Last Month (19/12/22) | Last Year (19/1/22) | |
| OCR | 4.25% | 4.25% | 4.25% | 0.75% |
| 90 Day Bank Bill | 4.81% | 4.78% | 4.58% | 1.05% |
| 10 Year Government Bond | 3.99% | 4.13% | 4.30% | 2.58% |
Source: Reserve Bank of NZ
