Weekly market wrap up - 19 July 2024
New Zealand’s Consumer Price Index (CPI) rose by 3.3% in the year through to June 2024, marking an encouraging retreat from the 4.0% pace reported in the prior release (March). This 3.3% headline figure, the lowest pace of consumer price appreciation since June 2021, was below both consensus market forecasts and RBNZ projections. Digging into the details suggests that there remain some challenges for the RBNZ in sustaining CPI near 2.0% over the medium term. Housing-related components of the calculation remain troublingly high, with rent prices up by 4.8%, construction costs for new houses increasing by 3.0%, council rates climbing by 9.6%, and insurance costs surging by 14.0%.
While the moderation in the headline inflation rate is a welcome change, persistent increases in essential living costs underscores the ongoing financial challenges faced by many households and, by extension, the RBNZ.
Employment data from the UK this week was somewhat mixed. Among the measures reported, the number of people in work rose by 19,000 in the three months to May. Although a modest number given the size of the UK population, it comes after four consecutive periods of pronounced decline in the measure. More broadly, the headline unemployment rate is holding steady at 4.4%, a level moderately above that seen in the pre-COVID era. While the elevation of unemployment is arguably supportive of an easing of demand-side inflation pressures, wage growth remains reasonably elevated.
Rather than providing clarity, the mixed inflation-related messages conveyed by the various aspects of the UK job market data have added further clouds to the outlook for interest rate changes at the Bank of England’s August meeting.
The spending of the average American consumer, as reported by the monthly Retail Sales metric, was flat for June, exceeding expectations of a 0.3% decline. While the headline reading suggested spending stagnation, a surge in the 'control group' measure (which is important to GDP calculations) of 0.9% indicated that demand in the US economy remains resilient. While the Retail Sales figures seem to point to positive consumer spending, when contrasted against related data, such as surging credit card balances and collapsing average household savings, the picture becomes more muddied.
The data may not have materially moved markets, but with demand being a key component of inflation, the numbers will find their way into the forecasting models of the US Federal Reserve, influencing (to some extent) the Bank’s projected monetary policy path.
China's economy expanded at a slower-than-expected pace in the second quarter of 2024. GDP data showed annualised economic growth of 4.7%, a five-quarter low and well behind market expectations of a 5.3% reading. The slowdown was attributed to a protracted property downturn and job insecurity, which dampened consumer confidence and led to a decline in retail sales. The Government's target for growth this year is a slightly vague “around 5.0%,” a figure increasingly viewed as ambitious. This is prompting elevated expectations for the delivery of further fiscal and monetary stimulus measures to bring the target back into focus. As New Zealand’s largest trading partner, the fortunes of China’s consumers have an indirect link to the economic prosperity of our economy.
The path ahead is uncertain, but timely and targeted support from Chinese government agencies seems to be a ‘when’ rather than ‘if’ scenario.
Authors: Zoe McCane, Sam Duncan, Duncan Roff and Ganan Jeyakumar
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