Consumer spending surged in New Zealand in November
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Consumer spending in New Zealand is strengthening, with retail sales numbers this morning providing further evidence
that the domestic economy is garnering momentum. Statistics New Zealand reported that total retail sales spiked 0.8%m/m
in November (J.P. Morgan and consensus: 0.5%m/m) or 1.5% from a year earlier, marking the largest on-year-ago rise since
mid-2008. Core retail sales also surged 0.8% over the month, with low interest rates, strong net migration flows, and
the positive wealth effects from recent house price gains creating a favourable retail environment. Discretionary
spending was firm, with solid gains reported in ‘other’ retailing (+7.3%) and department store sales (+3.5%). Other
significant increases were reported in automotive fuel retailing (+3.8%), liquor retailing (+9.0%), automotive
electrical, smash repairs, and tyres (+8.0%), and clothing and soft-goods retailing (+2.9%).
The monthly economic indicators emerging from New Zealand indicate that the economy is firmly on the recovery path,
confirming that current policy settings (the cash rate remains at a record low 2.5%) are too accommodative. Though some
argue the fourth quarter CPI data released yesterday, which printed on the lower side of expectations, bought the RBNZ
more time to sit on the policy sidelines, we maintain our call that the RBNZ will deliver its first rate hike in March,
ahead of official guidance. The medium term inflation outlook is a significant concern - domestic prices are rising and
excess capacity is diminishing – as is the recent pickup in housing activity. Indeed, the RBNZ will be reluctant to
leave the cash rate too low for too long, risking runaway credit growth and another debt-fueled house price bubble. The
next key event to watch is, of course, the OCR announcement next week. We will closely scrutinize the statement
accompanying what is likely to be a ‘no change’ decision for further clues on the timing of the first rate move.
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ENDS