NZ: When growth deflates inflation - BNZ

Stephen Toplis, Head of Research at BNZ, suggests that August’s ANZ Survey of Business Opinion was yet another piece of evidence confirming that the New Zealand economy is growing at a solid pace, delivering reasonable profits to businesses and utilizing more and more people in the labour force.

Key Quotes

“But, yet again, something that should be seen as cause for optimism will be sneered upon by a central bank that can find no sign of its beloved inflation Grinch amongst the festivities.

The ANZ’s own-activity indicator climbed to 33.7 in August from 31.4 a month earlier. That this indicator rose at all, on a headline basis, was quite remarkable as there is typically a significant seasonal drop in this particular month.

Yet again, however, all this growth is failing to generate significant inflationary pressure. Most of us will be overjoyed by this news but the RBNZ will likely not be amused.

So, on the current trajectory, and assuming that the RBNZ is true to its word, it surprises us that financial markets have not yet fully priced a rate cut before the end of this year. As we have said multiple times before, it is not a rate cut that we think the real economy needs but increasingly looks set to be one that inevitably will be delivered.”