Shoppers were more restrained in their Christmas spending. Photo /Alex Burton
Shoppers were more restrained in their Christmas spending. Photo /Alex Burton
EDITORIAL
The long-talked-about slowdown in New Zealand’s economy has finally arrived.
Retail sales data out last week shows Kiwis moderated their spending over the Christmas period with the first monthly drop in nine months.
Spending was down $166 million or 2.5 per cent in December compared to November 2022 and,while the amount rose in dollar value compared to the prior year, the increase was smaller than usual for the holiday season.
Spending was down in all areas apart from groceries, with sizeable drops in areas such as furnishings and appliances, hospitality, and clothing.
Westpac economist Satish Ranchhod says softening in these areas is particularly notable because, for most of 2022, householders were continuing to dial up their spending on discretionary items despite large price increases.
It seems Reserve Bank governor Adrian Orr’s message to the public has got through. In November, he told Kiwis to “cool your jets” and “think harder about your spending” as the central bank hiked the cash rate to 4.25 per cent in a bid to tackle soaring inflation.
The retail data came on the same day as new real estate figures which showed property prices are continuing to fall with the median house sale price now down 12 per cent in the last year. Properties are taking longer to sell and there are more of them on the market.
At the same time, mortgage rates are starting to bite as borrowers roll over on to higher fixed terms, moving from rates in the twos and threes to 6 per cent and higher.
Sentiment in the business community has also shifted. The latest NZIER Quarterly Survey of Business Opinion found 73 per cent of businesses expect general economic conditions to deteriorate over the coming months - the weakest result in the survey’s history.
It found firms have become much more cautious and some are looking to cut staff and pare back on investment plans.
All these factors point to a slowing economy - exactly what the Reserve Bank has been hoping for and trying to engineer.
But the key data point has yet to come. The Consumer Price Index figure - New Zealand’s measure for inflation aka the rising cost of living - is due out on Wednesday.
Overseas inflation has started to moderate coming down in the United States and emerging markets with talk that the US Federal Reserve may drop the pace of its interest rate hikes with the market predicting a rate rise of just 25 basis points next month. Last year, it made four consecutive 75 basis point increases.
New Zealand’s last inflation data release was in October with the year-to-September CPI coming in at 7.2 per cent - well above expectations of 6.5 per cent.
Since then, food prices have continued to rise although some other costs such as fuel have fallen back. Economists still expect the inflation data to be “red hot” which means the Reserve Bank will need to keep its foot on the pedal with more rate hikes.
