Weekly market wrap up

New Zealand’s March quarter Consumer Price Index (CPI) looked relatively calm at first glance, but it may prove to be the quiet before a noisier period. Headline inflation held at 3.1% annually, leaving it just above the Reserve Bank’s 1-3% target band and a touch firmer than the market expected. Electricity was the largest upward contributor, up 12.5% from a year earlier, adding to pressure on already stretched household budgets. Just as importantly, the March data only captured part of the recent lift in global oil prices tied to Middle East tensions. Higher fuel costs tend to feed through to inflation quickly, with flow-on effects into a range of goods and services. That helps explain why early expectations for the June quarter inflation figure are already pushing above 4%.

New Zealand’s fiscal reputation took a modest knock this week, with Moody’s revising its outlook to negative while maintaining the country’s Aaa credit rating - the highest level achievable. The change reflects growing unease around rising debt levels and persistent budget deficits. With other agencies voicing similar concerns, the message is starting to carry more weight. Finance Minister Nicola Willis acknowledged the shift in tone, while emphasising the Government’s commitment to restoring fiscal discipline and improving the books over time. It was a measured response - balancing reassurance with a clear recognition that progress will be gradual.

There was a more cautious tone to this week’s Global Dairy Trade auction, with the index down 2.7% from the prior event. A second consecutive decline will get attention, but the composition arguably matters more than the headline. Whole milk powder, still the clearest read-through for New Zealand’s farmgate payout outlook, eased just 0.6% to about NZ$6,208 a tonne, while skim milk powder rose 3.2%. The heavier weakness came through milk fats, with butter down 7.9% and anhydrous milk fat off 9.6%, which suggests this was less of a broad-based weakening in dairy demand, but a sharper repricing in one part of the basket.

NZIER’s latest QSBO had the feel of a survey taken just as the weather turned. Business confidence fell sharply in the March quarter, with only a net 1% of firms expecting an improvement in the broader economy, down from net 39% three months earlier. The detail suggests businesses have become more cautious as fuel prices jumped and global supply chains came under fresh pressure following disruption through the Strait of Hormuz. That caution is now showing up in hiring and investment plans, which softened over the quarter. Even so, the survey likely captured only the early stages of those pressures, with the full effects of higher energy costs and supply disruptions still to come.