by Nick Clark, National Manager General Policy
No surprise
The big economic news for the week wasn’t really that big, with no surprise that the Reserve Bank increased the Official Cash Rate to 2.50%.
This 50 basis point increase was the third in succession. Despite weakening global and domestic economies, the increase was universally expected given high inflation and strong cost pressures and pricing intentions. A continued strong labour market with a very low rate of unemployment meant the maximising employment objective was no impediment to the OCR increase.

The Reserve Bank’s statement, which was similar to its last statement in May, indicated it will continue to lift the OCR to a level where it is confident consumer price inflation will settle within the target range. It’s comfortable sticking with its projected path of the OCR set out in the May statement. This implies an OCR of around 3.50% by the end of the year and a peak of nearly 4.00% by mid-2023.
The next review will be on 17 August. Expect another 50 pointer. In the meantime, June quarter inflation data will be released on 18 July and employment data on 3 August.
Feds and Monetary Policy
The Reserve Bank is currently consulting on its five-yearly review of the Monetary Policy Remit, how it guides its decision making in pursuing low and stable inflation and supporting maximum sustainable employment.
This week Federated Farmers made its submission on the review.
Our submission strongly supports the Reserve Bank’s monetary policy objective of ‘achieving and maintaining stability in the general level of prices over the medium term’ and its target of 1-3% inflation. We did not support the addition in 2018 of an additional objective of ‘supporting maximum sustainable employment’ and we continue to think it an unnecessary and potentially harmful distraction to the price stability objective.
This also applies to other areas in which the Reserve Bank has been dabbling, including distributional outcomes, climate change, and other environmental, social, and cultural issues. These are worthy issues but they’re best left to other parts of government.
We think monetary policy should be focused firmly on price stability, which is the best way for the Reserve Bank to contribute to wellbeing. Current high inflation is harming wellbeing by driving up the cost of living and eroding living standards. Our position continues to be for the Reserve Bank to have a single mandate focusing on achieving and maintaining price stability as the best way it can contribute to wellbeing.
Farmer confidence slumps
Rabobank’s quarterly Rural Confidence Survey has shown a significant drop in the June 2022 quarter to its lowest level since the beginning of the COVID-19 pandemic.
Those expecting conditions in the agricultural economy to improve in the coming 12 months fell from 24% in the March quarter to 13% in the June quarter. Those expecting conditions to worsen rose from 27% to 48%. Those expecting no change fell from 46% to 38%. This meant a net score of -35%, much worse than the -3% net score in the March quarter.
Rising farm input costs were the major driver of lower farmer sentiment, with nearly two thirds of farmers with a negative outlook citing this as key reason for pessimism. Farmers were also concerned about government policy, rising interest rates and overseas markets.
Farmers’ expectations for their own farm business performance were down across all sector groups, the net score slumping 31 points from +11% to -20%. Dairy farmers recorded the largest drop in confidence (43 points) but remain the least pessimistic at -17%. Sheep and beef farmers were the most pessimistic at -25% (down 23 points).
Federated Farmers’ next six-monthly Farm Confidence Survey will be undertaken next week so keep an eye out for the email invitation to participate.
Food prices up
Food price inflation remained strong in June, according to Statistics NZ’s monthly Food Price Index.
Comparing June 2022 with May 2022, the Index rose 1.2% (and up 0.8% after seasonal adjustment).
- Fruit and vegetable prices were up 4.9%, with fruit down 2.6% but vegetables up 9.8%.
- Meat, poultry, and fish prices were up 0.9%, with beef & veal up 0.4% but mutton, lamb & hogget down 3.8%.
- Grocery food items were up 0.3%, with bread & cereals up 0.4% but milk, cheese & eggs down 0.6%.
On an annual basis, comparing June 2022 with June 2021, the Index was up 6.6%.
- Fruit and vegetable prices were up 5.5%, with fruit up 5.7% and vegetables up 5.5%.
- Meat, poultry, and fish prices were up 6.8%, with beef & veal up 8.7% and mutton, lamb & hogget up 3.3%.
- Grocery food items were up 7.6%, with bread & cereals up 5.3% and milk, cheese & eggs up 10.5%.
The 6.6% annual rate of food price inflation was a slight decrease on the 6.8% annual increase for the year to May.
Traffic volumes fall
ANZ’s monthly Truckometer has shown falls in June for both light traffic and heavy traffic, boding ill for the economy.
The Light Traffic Index fell 3.4% compared to May, while the Heavy Traffic Index fell 2.7%. Comparing June 2022 with June 2021 light traffic was up 2.0% but heavy traffic was down 3.4%.
ANZ observed that light traffic has held up reasonably well and remains around trend levels. It also noted that the extra public holiday in June might have had an impact on traffic volumes. However, heavy traffic has fallen below trend and it was flat for the June quarter.
Heavy traffic in particular has traditionally been a good indicator for GDP, so it indicates an economy struggling to regain momentum.
Retail spending weakens
Retail spending, as measured by Statistics NZ’s monthly Electronic Card Transactions was mostly weaker in June.
Seasonally-adjusted card spending was up 0.1% in June compared to May. All spending categories were down except for fuel which was up 2.9%. Higher fuel spending will reflect higher prices at the pump rather than more fuel being purchased.
Looking at annual comparisons, comparing June 2022 to June 2021, total card spending was up 2.9% to $8.2 billion. This is ‘actual’ spending, not adjusted for inflation, so in ‘real’ terms spending was most probably down. Again, fuel spending was up strongly and it was very much a mixed shopping bag for other spending categories:
- Consumables (e.g., groceries) up 3.0%.
- Durables (e.g., furniture, hardware, electrical goods, etc.) down 1.3%.
- Hospitality down 0.6%.
- Apparel up 1.3%.
- Fuel up 14.7%.
- Vehicles (excluding fuel) down 5.0%.
- Services down 2.9%.
- Non-retail industries excluding services up 7.6%.
Housing market continues to weaken
Winter has come and the cooling housing market is reflected in the Real Estate Institute of NZ’s Residential Market Statistics for the month of June.

The median house price increased 1.2% between May and June to $850,000, but it remains 8.1% below its peak in November 2021. On an annual basis, comparing June 2021 with June 2022, the median house price was up 4.2%.
Auckland eked out a 0.5% annual increase in its median house price while four regions had annual declines. Wellington’s median was down 4.2%, Hawkes Bay down 1.4%, Manawatu-Whanganui down 1.1%, and Taranaki down 0.2%. In contrast, Canterbury’s median was up 22.1% and Otago was up 13.6%.
Sales volumes took a hammering in June, with the 4,721 houses sold down 17.3% compared to May and down 38.1% compared to June 2021. Meanwhile, the median days to sell a house was 44, 13 days more than in June 2021. Both are an indication of falling demand.
Wealth and savings take a hit
New Zealanders’ household net worth fell and savings was reduced to near zero in the March quarter, according to Statistics NZ’s National Accounts (income, saving, assets and liabilities).
Household net wealth, the difference between the value of assets owned by households and the value of their liabilities, fell by $42.3 billion, or 1.7%, compared to the December 2021 quarter. This is the biggest quarterly drop since the June 2019 quarter. The value of household assets fell by $38.2 billion (mainly due to a drop in the value of residential owner-occupied property) while liabilities rose by $4.1 billion.
Meanwhile, household disposable income of $53.8 billion was up 1.8% for the quarter but household spending was up even more by 6.6% to $53.8 billion. This meant income and spending was the same, making for a household savings ratio of exactly zero.
Since March 2019 household savings has been positive and there were very large ratios during quarters coinciding with COVID-19 lockdowns. The restoration of near parity is a return to the norm prior to 2019.
Migration loss widens
Statistics NZ’s International Migration Statistics have shown a net migration loss of 10,700 for the year to May 2022, up from a net loss of 4,200 for the year to May 2021.
Migrant arrivals were down 17% to 47,500, while migrant departures were down 6% to 58,200. For most of the time since the pandemic struck New Zealand had losses of non-New Zealand citizens but gains of New Zealand citizens, but for the year to May 2022 there were net losses for both non-New Zealand citizens (8,400) and New Zealand citizens (2,300).
The number of migrant departures is still not high by historical standards. However, migrant arrivals remain very low. The risk from here, from a labour market perspective, is that departures will rise as New Zealanders move to greener pastures (especially Australia) but immigration settings will not allow for rapid replenishment.
Tourism recovering but a long way to go
Statistics NZ’s International Travel Statistics recorded 267,000 overseas visitor arrivals in the year to May 2022, more than double the 138,000 for the year to May 2021. Most of the 129,000 increase was from Australians (90,000).
New Zealand resident traveller arrivals was also up strongly, from 71,000 to 298,000. The biggest increases were for travellers returning from trips to Australia (up 99,000) and the Cook Islands (up 46,000).
To put these numbers into context pre-pandemic (for the year to May 2019) there were 3.9 million overseas visitor arrivals and 3.1 million New Zealand resident arrivals.
NIWA Soil Moisture Data
NIWA’s latest soil moisture maps (as at 9am Thursday 14 July) show the effect of this week’s rain, especially in the South Island. Areas along the east coast of the South Island which previously had soils significantly drier than usual are now significantly wetter than usual. There is now just a pocket inland from Dunedin which is significantly drier than usual. The North Island’s soils are all about normal for this time of year.


Exchange Rates
Overall, the NZ Dollar was down a little this week, slipping 0.3% against the Trade Weighted Index. It was down against most of our main trading partner currencies, 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 up 20 points to 3.05% while the 10 year Government Bond yield was up 1 point to 3.70%.
The Reserve Bank will next review monetary policy settings (including the OCR) on 17 August.
This Week (14/7/22) | Last Week (7/7/22) | Last Month (14/6/22) | Last Year (14/7/21) | |
OCR | 2.50% | 2.00% | 2.00% | 0.25% |
90 Day Bank Bill | 3.05% | 2.85% | 2.66% | 0.33% |
10 Year Government Bond | 3.70% | 3.69% | 4.22% | 1.59% |
Source: Reserve Bank of NZ