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Thursday, April 18, 2013


The Stats NZ CPI quarterly statement:
The consumers price index (CPI) rose 0.4 percent in the March 2013 quarter, Statistics New Zealand said today. There were increases for cigarettes and tobacco, food, rents and newly built houses, petrol, and prescription medicines. These were countered by seasonally lower international travel prices, better value telecommunication services, and widespread discounting for furniture, appliances, and audio-visual equipment. [...] The falls for furniture and audio-visual equipment were influenced by widespread discounting.
Annually, the CPI increased 0.9 percent in the year to the March 2013 quarter, due to increased prices for [...]

What the press release doesn't mention is the relationship that inflation has with the RBNZ, ie. the target inflation figure - the basis for measuring the performance of the independent central bank - is between one and three percent. The RBNZ Governor is in breach of his performance standards if the CPI continues outside of the band for any continued period of time (the exact period is kept vague, but more than a year would be pushing it). The last four quarters of year-on-year inflation were: 1.0%, 0.8%, 0.9%, and now 0.9% again.

It's almost impossible that the new RBNZ Governor would be sacked for under-shooting - at least at this early point in his tenure - but the question is worth asking: what would it take?

New Policy Targets Agreement signed today

Date 20 September 2012

Finance Minister Bill English and incoming Reserve Bank Governor Graeme Wheeler today signed a new Policy Targets Agreement, which sets out specific targets for maintaining price stability.

The new Policy Targets Agreement takes effect on 26 September, when Mr Wheeler starts his five-year term as Governor.

The agreement continues to require the Reserve Bank to keep CPI inflation between 1 per cent and 3 per cent on average over the medium term.

Within this target, the new agreement now requires the Bank to focus on keeping future average inflation near 2 per cent.
Mr Wheeler says the new PTA remains focused on maintaining price stability, as well as avoiding unnecessary instability in economic output, interest rates and the exchange rate.

“The focus on the 2 per cent midpoint will help better anchor inflation expectations,” he says.


That's heading towards a big fail at present, though the spike when they upped the GST rate (4.5% for year ending 03/2011) will bring that long term average closer to 2%.

The information itself as broken down shows discounting is having an impact - this confirms that consumer austerity persists and that demand is still suppressed. The high NZ dollar is probably doing the most to lower inflation: keeping a lid on petrol and import prices. That is a double-edged economic sword as exporters are not slow in pointing out.

NZ is just coasting along, plateauing in the great global financial unwind, waiting for a pick up in our trade partners' growth, but the government does not seem to be doing anything substantial or proactive to stimulate internal demand or stimulate export production - it certainly isn't spending any more money (unless you include the crony deals with Chorus/Telecom with UFB, the trucking and roading interests, bailing out private schools etc.).

The underlying risk for NZ and other similarly indebted nations is that inflation is a sleeping giant and that stability of the currency value internally depends on stability in the foreign exchange and that if the latter weakens the former will awake.



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