FYI | Dec 14 2006
By Chris Shaw
October’s retail sales figures have surprised the New Zealand market, the month-on-month increase of 0.3% coming in above consensus estimates of a 0.1% increase.
Macquarie sees the outcome as a solid one given it comes on the back of a 1.1% increase in September, the broker suggesting it highlights the ongoing strength in non-discretionary spending.
Both Commonwealth Bank and Macquarie point to a fall in petrol prices as being a major contributor to the result, the latter suggesting the tailwind this is providing for consumers is stronger than the headwind of rising interest rates. It sees this trend continuing for at least a few months.
Assuming this view is correct the pressure is increasing on the Reserve Bank of New Zealand (RBNZ) to move again on official interest rates, Stephen Koukoulas of TD Securities suggesting the retail sales data would have added to the central bank’s concerns in terms of upside risk from both growth and inflation.
Koukoulas also notes the current level of interest rates and the changing structure of the mortgage market, where a large number of new loans are on fixed rates, are allowing consumers to increase their spending. This in turn is increasing the pressure on the RBNZ to lift interest rates.
In his view the bank is probably now regretting not lifting rates in October as that would have sent a strong message, but the chance will come in January to correct things by moving rates higher. He expects such a change will occur if the CPI data for the December quarter, due in mid January, shows inflationary pressures remain.
Commonwealth Bank agrees with this assessment, suggesting if upcoming growth and CPI data are above expectations it will increase the chances of a January rate hike significantly. Despite this, the bank’s view is rates will remain on hold until later in 2007. Macquarie now sees it as a close call in terms of a change in rates in coming months, the broker’s view being upcoming data will be the key.