by Nick Clark, Group Manager National Policy
A bumper auction
This week’s Global Dairy Trade was a strong one, with the GDT Price Index jumping 4.6% compared to the previous event a fortnight ago.
All products on offer increased in price with whole milk powder, by far the biggest by volume, up 5.6%, skim milk powder, the second biggest, up 5.0%, and butter also up 5.0%. There were smaller increases for anhydrous milk fat (up 0.6%) and cheddar (up 1.1%).
The average selling price was $US4,463 and 30,644 tonnes of product were sold.
The GDT Price Index is now 25% higher than at the same time last year and it has also exceeded its previous recent peak set last March. It is at levels not seen since early 2014.
Food prices up
Annual food price inflation hit 4.5% in December, the highest in a decade. Vegetables continued to be the main upward driver for food prices but sheep meat and dairy products were also up strongly for the year.
Statistics NZ’s monthly Food Price Index was up 0.6% in December 2021 compared to November 2021. It was also up 0.6% after seasonal-adjustment.
- Fruit and vegetable prices were up 2.6% (up 1.1% when seasonally-adjusted), with fruit up 0.1% and vegetables up 4.3%.
- Meat, poultry, and fish prices were down 0.6%, with beef & veal down 1.8% and mutton, lamb & hogget down 2.4%.
- Grocery food prices were up 0.6% (up 0.8% when seasonally-adjusted), with bread & cereals up 0.6% and milk, cheese & eggs up 0.7%.
On an annual basis, comparing December 2021 with December 2020, the Index was up 4.5%:
- Fruit and vegetable prices were up 6.9%, with fruit down 3.8% and vegetables up 15.3%.
- Meat, poultry, and fish prices were up 3.2%, with beef & veal up 2.5% and mutton, lamb & hogget up 8.2%.
- Grocery food prices were up 4.5%, with bread & cereals up 3.2% and milk, cheese & eggs up 8.0%.
Weaker demand and cost pressures weigh on business confidence.
The latest NZIER Quarterly Survey of Business Opinion (QSBO) shows business confidence and demand have fallen but cost pressures have intensified.
A seasonally-adjusted net 34% of firms expect a deterioration in general economic conditions over the coming months, up 23 points from the net 11% of firms feeling pessimistic in the September quarter. Meanwhile, a net 1% of firms reported weaker demand in their own business in the December 2021 quarter, a 13 point worsening on the previous quarter.
NZIER reported that the QSBO “captured the effects on Auckland and its neighbouring regions in lockdown and domestic and international border restrictions. With new COVID-19 variants emerging and overwhelming healthcare systems in other major countries, uncertainty over how the pandemic will evolve remains high, and businesses have become more cautious about investment”.
NZIER observed that manufacturing and services were particularly ‘downbeat’, but almost all sectors covered were in pessimist territory for business confidence. Labour shortages and cost pressures are being felt across the board. Over half of businesses raised prices in the December quarter and a net 65% expect to raise prices in the current March quarter. This points to inflationary pressures persisting well into 2022.
The QSBO is well-respected and influential. Farms are not included in the QSBO but many businesses servicing the agricultural sector are so it will reflect rural sentiment indirectly.
Bumpy traffic.
December saw more volatility in traffic volumes, according to ANZ’s monthly Truckometer.
The Truckometer’s light traffic index lifted 15.7% in December 2021 compared to November 2021 as Auckland’s border re-opened. However, the heavy traffic index eased 0.6%. ANZ observed that heavy traffic is not far off pre-Delta levels but light traffic still has a way to go.
On an annual basis, taking a three month average for December 2021 compared to December 2020, light traffic was down 17.1% and heavy traffic down 0.1%. Both are slight improvements from November 2021’s annual changes.
Looking ahead, ANZ believes traffic and other economic data will remain volatile as the impacts of the previous lockdown work through and there will be further bumps in the road when Omicron inevitably hits.
House price growth slowing.
The Real Estate Institute of NZ’s latest Residential Market Statistics have shown a slowing in house prices in December but they remain elevated.
December 2021’s median house price slipped 1.6% compared to November’s, to $905,000. This was 21.5% higher than December 2020’s median but it’s a cooling compared to the 23.8% annual growth to November 2021.
On an annual basis Auckland’s median house price was up 25.9% to $1.29 million, and there were also big increases for Bay of Plenty (up 27.8%), West Coast (up 26.8%), Waikato (up 25.9%), and Canterbury (up 25.9%). The smallest annual regional increases were in Northland (up 13.0%) and Otago (up 13.7%).
6,755 houses were sold in December 2021, down 21.4% on November 2021 thanks to the usual holiday slowdown. However, there were also down 29.4% on December 2020.
The median days to sell edged up to 29, two days more than in December 2020.
Electronic card transactions
Retail spending increased in December 2021, according to Statistics NZ’s monthly Electronic Card Transactions.
Compared to the previous month, seasonally-adjusted card spending in retail industries was up 0.4%, with fuel up 4.2%, apparel up 1.0%, and motor vehicles up 1.4%. However, durables (e.g., furniture, electrical, hardware, department stores, recreational goods, etc.) was down 7.2% and consumables (e.g., groceries) down 0.1%.
On an annual basis, comparing the month of December 2021 with that of December 2020, actual (i.e., non-adjusted) retail spending was up 4.2%. Fuel spending was up 10.0%, motor vehicles up 7.2%, consumables up 6.1%, durables up 6.0%, apparel up 4.1%, but hospitality spending was down 6.9%. Services and non-retail industries were up a slower pace which depressed the total annual growth of card spending to 3.4%.
On the face of it this growth seems solid but considering annual inflation is running around 5% the volume of retail sales (sales in ‘real’ terms) will be weaker or could even be negative.
Next week
The big economic news for the week will be the December quarter Consumers Price Index, the headline measure of inflation. Economists expect a further pick-up in inflation from the September quarter’s 4.9% to well over 5% and possibly as high as 6%. This will add to the inevitability of further OCR increases.
Federated Farmers January 2021 Farm Confidence Survey closes on Monday. Many thanks to everyone who have responded so far.
NIWA Soil Moisture Data.
NIWA’s latest soil moisture maps (as at 9am Thursday 20 January) show most of the North Island’s soils significantly drier than usual for this time of year, especially so in the Northland and Waikato regions. Western and southern areas of the South Island are also significantly drier than usual, but eastern areas are more normal, with Kaikoura’s soils continuing to be significantly wetter than usual.
Exchange Rates
The NZ Dollar lost ground this week, down 0.9% against the Trade Weighted Index. It dropped against the currencies of all our major trading partners.
Source: Reserve Bank of NZ
Wholesale Interest Rates
Over the course of the week, the yield for the 90 Day Bank Bill was up 11 points to 1.08% and the 10 year Government Bond yield was up 6 points to 2.60%.
The Reserve Bank will next review monetary policy settings (including the OCR) on 23 February 2022. Another increase is highly likely given inflationary pressures.
| This Week (20/1/22) | Last Week (13/1/22) | Last Month (20/12/21) | Last Year (20/1/21) | |
| OCR | 0.75% | 0.75% | 0.75% | 0.25% |
| 90 Day Bank Bill | 1.08% | 0.97% | 0.94% | 0.29% |
| 10 Year Government Bond | 2.60% | 2.54% | 2.29% | 1.01% |
Source: Reserve Bank of NZ