Although not beaten, inflation pressures ease broadly

Kia ora,

Welcome to Monday’s Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.

I'm David Chaston and this is the international edition from Interest.co.nz.

And today we lead with news inflation's impulse seems to be easing worldwide.

In the week ahead, the big international data will focus on the Q3 Chinese GDP result on Wednesday. In the US, the data will be second tier this coming week, although Q4 earnings reports will be released in a swelling tide. We will get some European CPI data and the same from Japan.

Locally, we could get REINZ December data this week too depending on how fast agencies got their reports in over the holiday period.

Over the weekend, China's new yuan lending for December came in well short of what was expected. Beijing is clearly having trouble getting funding out of its large policy banks. The December +¥1.17 tln was marginally higher than in November but well short of the expected +¥1.4 tln. In their context ¥1.4 tln isn't large by historic standards. And the +10.4% rise from a year ago is very low by Chinese standards - in fact a record low expansion on that annualised basis. 

China's exports rose from US$292 bln in November to US$304 bln in December, a +4.0% rise and a bit more than expected. They were up +2.3% from the same month a year ago. But the good December result - aided by a depreciated currency - masks that for all of 2023 exports dropped -4.6% from the record 2022 level.

Helping the December result was that producer prices fell -2.7% in China, quite a different pressure than the virtual no change in December 2022.

And as expected, consumer inflation was negative - that is, deflation - with prices -0.3% lower in December than the same month a year ago. This was slightly "less worse" than expected, and is the third month in a row of year-on-year deflation. But that is their longest deflation streak in 14 years. Overall food prices rose +0.6% in the month to be -2.0% lower than a year ago. But beef prices are -6.0% below year ago levels, lamb -5.7% down, and milk down a lesser -0.9%.

The Taiwan election result delivered a tough outcome for the winner, the China-sceptic DPP candidate. Lai Ching-te won by a comfortable margin though with less than half the vote, but his party lost control of parliament on which the president-elect will have to rely to pass legislation and spending.

Indian industrial production momentum fell away in November. It was up +2.4% from a year ago, marking the lowest reading since March last year, following a downwardly revised +11.6% growth in October. Analysts had expected November to expand by 4%. Output decelerated sharply across all key sectors. Meanwhile consumer inflation ticked up slightly in December, up to 5.7%, above the November 5.4% but less than the expected 5.9% rate.

American producer prices unexpectedly fell in December from November but only by a tiny amount. That means that their producer prices were up only 1.0% in the year, up from a rise of +0.8% in November on that basis. A year ago US PPI was rising at a +6% rate. This latest PPI data was less than expected.

The January edition of the USDA's WASDE report forecasts lower American beef exports in 2024 and higher imports from Australia and New Zealand. The American milk production forecast is lowered too.

We should also note that for all states and the US Federal Government, it will be a holiday tomorrow, Martin Luther King Day. American stock and bond markets will be closed. 

In Australia, they set their milk price for dairy farmers at AU$9.44/kgMS once a year in June. That is a mandated, government policy. Since then international prices for dairy products have dived significantly. In New Zealand, our June price was NZ$8.75/kgMS. But as prices retreated it has been eased back to NZ$7.50/kgMS. However the Aussie price is still AU$9.44/kg. That makes Australian dairy products very expensive locally, makes exporting from there near impossible - and it encourages imports. In fact because we have full access to the Aussie market under CER, our exports dairy to have surged, for some products by more than +60%. More is to come. Some local Australian dairy facilities are in threat of closing, some already have. It is all a lesson in the folly of a government-mandated price "to protect farmers". It will end up hurting them more. It is clearly much better to have market signals all the way down the supply chain.

The RBNZ reported that the total value of our housing stock as at the end of September rose by +$27.6 bln from June to $1.59 tln. That was the first quarter-on-quarter rise since December 2021, although a year ago this value was $1.63 tln, so it is still some way down on that basis and still -$172 bln lower than the peak in December 2021. Over that time we have been building new houses, aggressively in some places (Auckland), so that data shows the per-dwelling value down more than -13% from that peak, nationally, a retreat of -$118,000 per dwelling.

Infometrics reports supplier cost increases remained higher than a year ago in December, but there was continued moderation in the annual pace of change. In fact there was no change from November. The Infometrics-Foodstuffs Grocery Supplier Cost Index shows an average +4.5% increase in what suppliers charged Foodstuffs supermarkets for goods in December compared to a year ago.

The UST 10yr yield starts today at 3.94% and down -2 bps from this time Saturday. 

The price of gold will start today up +US$6/oz from Saturday at just on US$2049/oz.

Oil prices are holding under US$73/bbl in the US. The international Brent price is still at just over US$78/bbl.

The Kiwi dollar starts today at 62.4 USc unchanged from Saturday. And it is unchanged from this time last week. Against the Aussie we are also unchanged at 93.4 AUc. Against the euro we are firm at 57 euro cents. That all means our TWI-5 starts today just on 70.9.

The bitcoin price starts today lower, now at US$42,921 and down -0.8% from Saturday. Volatility over the past 24 hours however has been low at +/-0.6%.

You can find links to the articles mentioned today in our show notes.

You can get more news affecting the economy in New Zealand from interest.co.nz.

Kia ora. I'm David Chaston. And we will do this again tomorrow.