The last 6 weeks have shown the New Zealand economy to be tight – but not to tight. Unemployment has fallen to a record low (3.5%), but at the same time the participation rate has fallen and employment growth has fallen to its lowest rate in a few years. Income growth was strong, but not out of control.
The QSBO indicated that capacity utilisation is still high, but not as high as it has been. Consumption imports are rising, but merchant stocks are high and retail sales growth is moderate at best, although off a high level.
House price growth is strong, but slowing. House sales are falling, but the average number of days to sell property remain short, implying that there is little pressure on highly leveraged home owners to sell property.
There has been no piece of information that will push the Bank to lift, but also no data that allows the Bank to call a definitive end to the tightening cycle. Expect the Reserve Bank to continue to warn us about food prices, regulatory schemes, and fiscal stimulus as the possible factors that could force it to lift rates again. Personally, I will be most interested in hearing how far they are willing to attack the potential of looser fiscal policy in their MPS.