Signs point to early rates rise

Analysts say the Reserve Bank may consider raising interest rates sooner than expected after surprisingly positive December quarter retail sales figures.

Seasonally adjusted retail sales for the three months increased by 2.1 per cent, double that expected.

Seasonally adjusted sales for the month were up 0.8 per cent on November's figures, nearly three times the market's expectation of 0.3 per cent.

Car sales climbed nearly 8 per cent, with volumes up by 7.4 per cent.

"Looking at the details of the registration data, we've seen quite a strong bounce back in new car sales," said senior Deutsche Bank economist Darren Gibbs.

"That's predominantly business spending so businesses have the confidence, and used car sales have been strong for quite a while now."

A 4.7 per cent drop in petrol prices during the quarter also helped consumption.

Excluding motor vehicle sales, core retailing rose 1.8 per cent against the September quarter, which was still seen as a solid rise.

Signs of a booming economy may prompt Reserve Bank Governor Don Brash to raise interest rates, although economists vary in their predictions on when Dr Brash will hit the brakes.

WestpacTrust economist Donna Purdue thought rates were unlikely to rise until December.

"There's still some downside in inflationary pressures so they don't need to be in a hurry to raise interest rates."

But Mr Gibbs said it could be sooner. "[I've] got to think there's some chance now that the Reserve Bank could be the first central bank in the world to get into re-tightening monetary policy. Perhaps as early as May."

Deutsche Bank economist Ulf Schoefisch said the strong retail figures were unlikely to be just a blip on the radar.

"It underlines what we've seen from other data," he said.

"The end of 2001 was very strong for the economy. We've had labour market data and that suggested last week there had been a lot of employment growth and income growth.

"We've had migration data suggesting New Zealand is gaining population. We've had tourism recovering faster than expected.

"So all of this is consistent with retail sales."

Mr Schoefisch said this trend was moving faster than expected, and if momentum was maintained, the bank might raise interest rates again as soon as May.

- NZPA, STAFF REPORTER