New Zealand food prices fell last month as lamb led a decline in meat and seasonal prices fell for fruit and vegetables. Food prices rose on an annual basis, suggesting inflation pressures may be emerging.
Food prices rose 0.2 percent in November from October and rose 1.4 percent from a year earlier, according to Statistics New Zealand. Prices have fallen or held unchanged in each of the past four months.
The figures come after the Reserve Bank today gave a stronger signal in its monetary policy statement that interest rates will rise next year, noting that inflationary pressures are “projected to increase.” Food prices make up almost 19 percent of the consumer price index.
Prices of meat, poultry and fish fell 2.1 percent last month, led by a 7 percent decline for lamb, a 4.2 percent decline for seafood as a group and a 3.2 percent drop for processed meats.
Fruit and vegetable prices fell 1.1 percent with weaker prices for tomatoes, strawberries and broccoli. Grocery foods were up 0.3 percent led by food additives and condiments, even as the price of bread slipped 2.8 percent. Non-alcoholic drinks rose 1.5 percent and restaurant and takeaway foods fell 0.2 percent.
In the year, grocery foods rose 1.8 percent, led by a 6.7 percent gain for fresh milk, a 12 percent jump for yoghurt and a 23 percent increase for butter. Cheese was up 5.4 percent. Bread rose 2 percent in the year.
Fruit and vegetable prices were down 0.4 percent in the year.
New Zealand’s house sale numbers unexpected fell in November from a year earlier as the Reserve Bank’s restrictions on low equity lending appear to have snuffled out some buyers seeking cheaper properties.
The number of houses sold in November fell 6.6 percent to 6,691 from the same month a year earlier, and were up 2.7 percent from October, lagging the usual pace of increase, according to Real Estate Institute of New Zealand figures. That’s the second month since the Reserve Bank imposed limits on how much banks can lend on housing with just a fifth or less down as a deposit, and carried on the trend of slowing sales from October.
“As the average increase between October and November over the last ten years has been more than 10 percent, this indicates a further softening in sales volumes,” chief executive Helen O’Sullivan said in a statement. “The restrictions on high LVR lending may well be a driver of the softer sales figures, with sales below $400,000 falling almost 20 percent compared to November last year.”
Houses under $400,000 accounted for about 45 percent of sales in the month.
The central bank will welcome the early signs its policy is biting into demand as it looks to cool heating markets in Auckland and Christchurch which have been hit with a shortage of supply without having to resort to hiking interest rates.
Governor Graeme Wheeler today firmed up his stance on hiking rates next year, saying the official cash rate is expected to increase 2.25 percentage points over the coming two-and-a-quarter years.
The bank today said it expects house price inflation to persist for slightly longer than it previously thought as inbound net migration and low interest rates stoke demand.
The national median sale price rose 4.3 percent to $425,000, a new record, and was up 11 percent from a year earlier, with Auckland and Christchurch accounting for about 85 percent of that gain. The stratified housing price index, which smoothes out peaks and troughs, rose 1.2 percent in November, and was up 9.6 percent from a year earlier.
Auckland prices rose 6.5 percent in November from October to $620,000 and were up 15 percent from a year earlier. The number of houses sold rose 4.2 percent 2,794 in November, and were down 4.3 percent from a year earlier.
Canterbury/Westland sale prices rose 2.6 percent in November to $389,750 and were up 13 percent from a year earlier. Sales volumes were down 0.2 percent to 888 and fell 1.4 percent from a year earlier.
The number of days to sell was unchanged from October at 31 days, two days faster than November 2012.
Trade Me, the auction website, agreed to acquire MotorWeb for $19.5 million in cash to deepen its motor vehicle offering by adding a business forecast to lift earnings in 2014.
Auckland-based MotorWeb had earnings before interest, tax, depreciation and amortisation of $3.7 million in the year ended March 31, and expects to lift earnings on the basis to $4.1 million in the current year. The purchase price is at a multiple of 5.3 times 2013 EBITDA and 4.8 times forecast 2014 earnings, Trade Me said.
MotorWeb packages and sells motor vehicle information and reports to finance companies, insurers, car dealers and the general public, providing a “one stop shop for the motor vehicle industry via its suite of more than a dozen products and services,” it said in a statement to the NZX. The business was founded by Patrick Costigan in 1997 and began trading in 2000, with operations in New Zealand and Australia.
“The MotorWeb business has a lot of potential to complement our existing Trade Me Motors business, and will give us the chance to broaden and deepen the products and data we provide in relation to motor vehicles,” said Trade Me chief executive Jon Macdonald.
Trade Me shares traded unchanged at $4.22 and have gained 6.8 percent this year.
Strong commodity prices, particularly for dairy products, could drive up interest rates more than currently expected if they continue to keep the terms of trade at elevated levels, the Reserve Bank says.
In an alternative scenario in today’s monetary policy statement, the bank projected a more aggressive tightening cycle if global demand for New Zealand exports keeps commodity prices high and maintains an elevated terms of trade. The terms of trade were at a 40-year high in the September quarter as surging dairy prices, primarily driven by Chinese demand, raised the value of export receipts.
If proposed reforms by Chinese authorities go ahead, that could benefit New Zealand’s export products over the coming decade, putting the terms of trade on an increasing trajectory rather a decline, as assumed in the bank’s main forecast.
That in turn would increase pressure on productive resources and lead to stronger non-tradables inflation, needing a more aggressive policy response from the Reserve Bank.
The improving outlook would also drive up the currency, though that wouldn’t detract from bigger interest rate hikes as the better trade environment would stoke domestic demand.
Reserve Bank governor Graeme Wheeler kept the official cash rate at a record-low 2.5 percent, while lifting the projected path for interest rates and saying he’s ready to start hiking “as needed” to keep inflation under control. The kiwi gained on the statement.
“Annual CPI inflation increased to 1.4 percent in the September quarter and inflation pressures are projected to increase,” Wheeler said in a statement. “The bank will increase the OCR as needed to keep future average inflation near the 2 percent target midpoint.”
The momentum in the economic recovery, driven by strong commodity prices, increasing consumer spending and expanding construction is offsetting the impact of a high New Zealand dollar and lower government spending, meaning “it is becoming unnecessary to maintain the current degree of monetary stimulus,” the bank said in the monetary policy statement.
“The bank’s assessment is that, consistent with CPI inflation settling near the 2 percent midpoint of the target range over the medium term, growing demand and inflation pressure should warrant a withdrawal of stimulus beginning in 2014,” the report said.
The New Zealand dollar jumped to 82.72 US cents from 82.37 cents immediately before the statement.
The central bank lifted its forecast track for the 90-day bank bill rate, seen as a proxy for the OCR, by 10 basis points through the projected period, with the rate predicted to increase to 2.7 percent in the March quarter of next year, rising to 3.8 percent by the end of the year, and 4.8 percent by March 2016.
The higher track for the rate was on the view that terms of trade, which reached a 40-year high in the September quarter, and domestic demand were stronger than previously thought, despite a higher currency than projected.
Wheeler has previously indicated he plans to raise rates next year depending on how much the bubbling housing market and growing building activity spill over into lifting inflation, though the pace and scale of tightening may depend on the strength of the currency.
“We expect the RBNZ will repeat the previous messages that the OCR is going up, but not until around April. It will acknowledge that the economy is stronger, but the exchange rate is higher than previously anticipated,” Westpac Banking Corp market strategist Imre Speizer said in a note before the release. “If our expectations prove correct, markets will be disappointed.”
Yesterday, traders were betting Wheeler will lift the key rate 116 basis points over the coming year, according to the Overnight Index Swap curve.
The bank increased its forecast for the annual pace of inflation through the first half of 2014, though sees a slower pace from the September quarter than previously thought as measures of underlying inflation show it’s beginning to pick up.
Wheeler singled out the strong kiwi dollar as offsetting domestic demand, saying “the high exchange rate is a particular headwind for the tradables sector and the bank does not believe it is sustainable in the long run.”
Still, the Reserve Bank expects the currency will remain at a high level by past standards, even if it moderates over the medium term.
The currency has been trading above the central bank’s September projections after the Federal Reserve’s decision to keep printing money at its current pace left the greenback debased, and as Australia’s slowing economy pushed the kiwi to five-year highs against its trans-Tasman counterpart. The accelerating local economic recovery and terms of trade at a 40-year high have added to investor’s appetite for the kiwi.
The currency traded at 77.56 at 5pm in Wellington yesterday, above the 74.3 quarterly average projected by the Reserve Bank, a level it hasn’t tested since early September.
As a means to clamp down on riskier lending fanning the flames in a heating property market, Wheeler imposed restrictions on the level of low-equity lending banks can write to help stifle demand without having to resort to an interest rate hike. Quotable Value figures this week showed property prices rose at an annual pace of 9.2 percent last month.
The bank estimates the restrictions will lower annual house price inflation by between 1 and 4 percentage points, and trim household credit growth by between 1 and 3 percentage points.
Wheeler said the bank is watching the housing market closely, though data to assess the impact of the loan restrictions is limited to date.
While the policy has only been in place since October, the bank this week carved out new housing from the policy after it was convinced that high loan-to-value lending on new builds financed about 12 percent of activity, but just 1 percent of total mortgage lending.
Wall Street sank as a bipartisan US budget deal removed one of the obstacles the Federal Reserve had previously identified as key to a decision on when to begin tapering its monthly bond-buying program.
“The hurdle of the budget deal has been passed and it will affect the Fed’s decision to taper in the coming months as that uncertainty has subsided,” Chad Morganlander, a Florham Park, New Jersey-based fund manager at Stifel Nicolaus & Co, told Bloomberg News.
The proposed deal still needs approval of both chambers of Congress. Fitch Ratings said the deal showed “an improvement in the functioning of budget policymaking.”
“But the proposal does not increase the federal government debt ceiling, which Congress will need to raise again by 7 February to give the Treasury the borrowing capacity it needs to meet its payment obligations and avoid further recourse to extraordinary measures,” Fitch Ratings said in a statement.
Fitch Ratings said it expects to resolve the Rating Watch Negative on the US ‘AAA’ sovereign rating by the end of the first quarter of 2014.
“The budget deal itself is at best a signal that we won’t shut the government down at the start of the new year,” Alexander Friedman, chief investment officer at UBS’s wealth-management unit, told Bloomberg.
In afternoon trading in New York, the Dow Jones Industrial Average dropped 0.51 percent, the Standard & Poor’s 500 Index retreated 0.75 percent, while the Nasdaq Composite Index sank 0.96 percent. Drops in shares of Nike and UnitedHealth Group, down 2.5 percent and 2.3 percent respectively weaker, led losses in the Dow.
Treasuries also declined, pushing yields on the 10-year bond 2 basis points higher to 2.82 percent.
Thirty-two economists expect the Fed to begin tapering in March, while 22 said it would scale back its US$85 billion monthly bond-buying program in January. Only 12 economists expected an announcement next week, according to Reuters poll of more than 60 economists taken this week.
“It certainly does appear that a window of opportunity could be opening up for the Fed to act next week without a sharp market reaction,” CMC Markets strategist Michael Hewson, told Reuters. “The only question remaining is as to whether they will avail themselves of it.”
The same survey showed economists forecast US GDP growth to accelerate to a 2.5 percent annualised rate in the first quarter of 2014, and reaching 3 percent by year-end. For all of 2014, the US economy is expected to grow 2.6 percent, up from 2.5 percent in the November poll and faster than the 1.7 percent forecast for the whole year.
In Europe, the Stoxx 600 Index ended the session with a 0.5 percent slide from the previous close. France’s CAC 40 gave up 0.1 percent, the UK’s FTSE 100 fell 0.2 percent, while Germany’s DAX lost 0.4 percent.
New Zealand shares fell after Fonterra Cooperative Group unexpectedly cut its forecast dividends and earnings for 2014, while the high kiwi against the Australian dollar weighed on companies such as Ebos Group with businesses across the Tasman.
The NZX 50 Index fell 2.202 points, or 0.05 percent, to 4704.304. Within the index, 22 stocks fell, 23 rose and five were unchanged. Turnover was $139 million.
Fonterra Shareholders’ Fund units fell 5.7 percent to $5.75, having dropped to a record low $5.48 in intraday trading. The world’s biggest dairy exporter cut its dividend and earnings forecasts for 2014, saying high milk powder prices haven’t been matched by cheese and casein.
“It is very disappointing,” said Grant Williamson, a director at Hamilton Hindin Greene. “The unusual situation in the dairy market caused this.” The units’ recovery at the close from an all-time low suggested some investors taking a medium-term view and an expectation it will get back to paying reasonable dividends, he said.
Ebos, which made its biggest ever purchase this year with the $1.1 billion acquisition of Australian pharmaceuticals firm Symbion, fell 2.8 percent to $8.70 as the kiwi dollar traded at 90.62 Australian cents, near a five-year high.
Chorus climbed 1.1 percent from a record low to $1.33.
“We’re starting to see some bargain hunting coming in,” Williamson said. “A lot of the damage has already been done.”
Among other companies with reviving stocks after recent selloffs, Xero rose 1.6 percent to $33.51.
The cloud-based accounting service company “went through a period of profit taking” and now “there’s a bit more renewed buying interest at these lower levels.”
MightyRiverPower fell 0.7 percent to $2.01 and Contact Energy fell 0.8 percent to $4.93. Vector dropped 1.9 percent to $2.55 and TrustPower was unchanged at $6.50.
Meridian Energy rose 1.6 percent to 96 cents, edging back toward its issue price after the announcement that it will join the NZX 50 from Dec. 23, replacing AMP, which fell 2.5 percent to $4.66.
Kathmandu, the outdoor clothing chain, dropped 6.1 percent to $3.10 and clothing retailer Hallenstein Glasson Holdings dropped 1.3 percent to $3.90.
Fletcher Building slipped 0.3 percent to $8.79 and Telecom fell 0.2 percent to $2.285.
SkyCity Entertainment Group fell 4.2 percent to $3.66.
The New Zealand dollar fell after dairy exporter Fonterra Cooperative Group surprised investors by keeping its forecast payout to farmers unchanged and as traders await the Reserve Bank’s policy statement, which is expected to keep interest rates at a record low.
The kiwi dropped to 82.78 US cents at 5pm in Wellington from 83.11 cents at 8am, little changed from 82.91 cents yesterday. The trade-weighted index declined to 77.54 from 77.78.
Fonterra kept its forecast payout to farmers at $8.30 per kilograms of milk solids for the current season, dashing expectations the world’s biggest dairy exporter would pay more for its base ingredient amid rising global prices. That came ahead of tomorrow’s last monetary policy statement for the year, where governor Graeme Wheeler is expected to keep the official cash rate at 2.5 percent, while he balances the need for future hikes to stave off the threat of inflation against attracting investors to an already strong currency.
“The expectations were that Fonterra were going to lift the payout up – we’d heard scuttlebutt of $9, even up to $10, so that was a little bit of a surprise,” said Michael Johnston, a senior dealer at HiFX in Auckland. “But the kiwi’s holding up given the RBNZ is out tomorrow.”
Traders have priced in 116 basis points of increases to the OCR over the coming year, according to the Overnight Index Swap curve, though Wheeler may have to trim his track for future hikes given the persistent strength of the currency after the Federal Reserve didn’t start unwinding its US$85 billion asset purchase programme in September. The quantitative easing has been debasing the greenback by flooding the market with US dollars.
“We expect them to talk about the kiwi being overvalued,” HiFX’s Johnston said.
Investors will also be looking out for Australian employment figures tomorrow as a gauge of how quickly the economy is slowing across the Tasman. The kiwi fell to 90.62 Australian cents at 5pm in Wellington from 91.06 cents yesterday.
The New Zealand dollar decreased to 60.14 euro cents from 60.28 cents yesterday and was little changed at 50.35 British pence from 50.40 pence. It dropped to 84.94 yen from 85.62 yen yesterday.
Restaurant Brands, New Zealand’s largest fast food operator by sales, said third -quarter sales growth accelerated to 5.4 percent this year, compared with just 0.5 percent growth in the same period a year earlier.
Sales rose to $76.2 million in the 12 weeks ended Dec. 2, from $72.2 million in the same period a year earlier, even as it had two fewer stores, the Auckland-based company said in a statement. On a same store basis, sales edged up 0.2 percent.
Chief executive Russel Creedy is counting on new brands such as burger chain Carl’s Jr to drive future earnings growth. To improve profitability in its legacy businesses, the company is refurbishing and adding to its KFC outlets, which account for about three quarters of sales, exiting low performing Pizza Hut stores and closing its worst performing Starbucks Coffee outlets.
Restaurant Brands said the Carl’s Jr chain, which it opened in November last year, was the largest contributor to the third quarter sales increase. The burger chain added $4 million to sales in the latest quarter, compared with just $90,000 in the year earlier period as the number of stores swelled to eight from just one.
Sales at KFC slipped 0.1 percent in the quarter to $55.3 million even as it added two new stores from the year earlier as the brand focuses on ‘value’ promotions.
Pizza Hut sales slipped 0.4 percent to $11 million, lagging last year’s 3.5 percent increase. The company had eight fewer stores in the latest period as part of its strategy to sell regional and lower volume stores to independent franchisees.
The Starbucks Coffee unit increased sales 2.7 percent to $5.8 million even with three fewer stores as it continues to close non-performing outlets.
Restaurant Brands didn’t provide an updated profit forecast. In October, the company said improved trading in the second half of the financial year would see full-year earnings of between $18 million and $19 million, up from $17.7 million a year earlier.
Shares in Restaurant Brands last traded at $2.80, having gained 6.1 percent this year.
MightyRiverPower, the first state-owned power company to be partially privatised by the government this year, plans to keep the price it charges for electricity on hold until at least April 2015, but can’t guarantee transmission and distribution prices won’t rise.
The energy component of a power bill is between 50 and 60 percent of the total and the Auckland-based company says it won’t move that element of its prices for gas or electricity residential customers as it waits for looming regulatory changes on lines companies and grid operator Transpower.
It will then assess the impact of any tweaks, it said in a statement. The regulation is expected to be set in the coming two months. A long awaited High Court decision on a merits review of the Commerce Commission’s approach to regulated pricing for electricity and gas distribution is expected today.
“We are now confirming that for our customers there will be no increase in our energy prices for a further 15 months,” chief executive Doug Heffernan said. “However, there will likely be changes in customer pricing from April 1 due to variables over which we have no control that we pass through on our bills – such as transmission and distribution charges and any increases in metering costs due to regulatory requirements.”
MRP’s move comes at a time when electricity policy becomes increasingly politicised, with Opposition parties promising to overhaul the industry structure by introducing a central wholesale buying agency as a means to keep retail prices low.
“Our decision to hold energy prices is the result of a healthy, well-functioning electricity market that has, by global measures, delivered positive outcomes for both customers and the country, enabled by the multi-billion dollar investment in renewable generation capacity by a number of competing generators over the last few years,” Heffernan said.
Government figures show electricity consumer prices rose at an annual pace of 3.6 percent in the September quarter, and gas prices increased 0.7 percent. That compares a 1.4 percent annual increase in the overall consumer price index.
Last month MRP affirmed its forecast for annual earnings growth of 27 percent to $498 million in the year ending June 30, 2014.
The company’s shares were unchanged at $2.025 in trading yesterday, and have dropped 19 percent from the $2.50 offer price in the May float. MRP embarked on a share in October as a means to prop up the price.